Professional Documents
Culture Documents
International GAAP Illustrative nancial statements for the year ended 31 December 2010
Based on International Financial Reporting Standards in issue at 30 June 2010
Contents
Abbreviations and key.............................................................................................................................................. 1 Introduction............................................................................................................................................................. 2 Independent auditors report to the shareholders of Good Insurance (International) Limited .................................... 12 Group consolidated income statement .................................................................................................................... 13 Group consolidated statement of comprehensive income ........................................................................................ 15 Group consolidated statement of financial position ................................................................................................. 16 Group consolidated statement of changes in equity ................................................................................................ 17 Group consolidated statement of cash flows ........................................................................................................... 19 Notes to the consolidated financial statements ...................................................................................................... 20 1. Corporate information .................................................................................................................................... 20 2.1 Basis of preparation...................................................................................................................................... 20 2.2 Basis of consolidation ................................................................................................................................... 20 2.3 Summary of significant accounting policies ..................................................................................................... 21 2.4 Changes in accounting policy and disclosures .................................................................................................. 46 2.5 Significant accounting judgments, estimates and assumptions .......................................................................... 48 2.6 Standards issued but not yet effective ............................................................................................................ 51 3. Business combinations and acquisition of non-controlling interests ..................................................................... 52 4. Segment information ...................................................................................................................................... 54 5. Net premiums ................................................................................................................................................ 58 6. Fees and commission income ........................................................................................................................... 59 7. Investment income ......................................................................................................................................... 59 8. Realised gains ................................................................................................................................................ 59 9. Fair value gains and losses .............................................................................................................................. 60 10. Net benefits and claims ................................................................................................................................. 60 11. Finance costs ............................................................................................................................................... 61 12. Other operating and administrative expenses .................................................................................................. 61 13. Employee benefits expense ........................................................................................................................... 61 14. Income tax expense ...................................................................................................................................... 62 15. Dividends paid and proposed ......................................................................................................................... 63 16. Earnings per share........................................................................................................................................ 63 17. Income tax effects relating to other comprehensive income.............................................................................. 64 18. Components of other comprehensive income .................................................................................................. 64 19. Share-based payment ................................................................................................................................... 64 20. Goodwill ...................................................................................................................................................... 66 21. Intangible assets .......................................................................................................................................... 68 22. Investment in an associate ............................................................................................................................ 68 23. Property and equipment................................................................................................................................ 69 24. Investment properties ................................................................................................................................... 70 25. Derivative financial instruments ..................................................................................................................... 70 26. Financial instruments other than derivative financial instruments and fair values of financial instruments ............ 73 27. Reinsurance assets ....................................................................................................................................... 84 28. Taxation ...................................................................................................................................................... 84 29. Insurance receivables ................................................................................................................................... 85 30. Deferred expenses ........................................................................................................................................ 86 31. Accrued income ........................................................................................................................................... 86 32. Cash and cash equivalents ............................................................................................................................. 86 33. Insurance contract liabilities .......................................................................................................................... 86 34. Investment contract liabilities ........................................................................................................................ 90 35. Net asset value attributable to unitholders .................................................................................................... 92 36. Pension benefit obligation ............................................................................................................................. 92 37. Borrowings .................................................................................................................................................. 94
Good Insurance (International) Limited i
38. Other financial liabilities ................................................................................................................................ 95 39. Insurance payables ....................................................................................................................................... 96 40. Deferred revenue ......................................................................................................................................... 96 41. Trade and other payables .............................................................................................................................. 96 42. Issued share capital ...................................................................................................................................... 97 43. Other equity instruments .............................................................................................................................. 97 44. Risk management framework ........................................................................................................................ 97 45. Insurance and financial risk ......................................................................................................................... 100 46. Cash generated from operating activities ...................................................................................................... 134 47. Contingencies and commitments.................................................................................................................. 135 48. Related party disclosures ............................................................................................................................ 136 49. Events after the reporting date .................................................................................................................... 137 Appendix 1 Firsttime adoption of IFRS ............................................................................................................. 138 Appendix 2 Shadow accounting .......................................................................................................................... 145 Appendix 3 Embedded value (EV) ....................................................................................................................... 149 Appendix 4 Noncontrolling interests measured at fair value in business combination ........................................ 152 Appendix 5 Consolidated cash flow statement direct method ........................................................................... 154 Appendix 6 Glossary of insurance terms ............................................................................................................ 155 Index ................................................................................................................................................................... 157
ii
IFRS references are shown on the right hand side of each page of the primary financial statements and the notes, indicating the specific IFRS paragraph that outlines the accounting treatment or disclosure adopted for that particular line item or block of narrative in the publication. The IFRS references to IAS 1, IAS 27 and IFRS 3 are to the revised versions of these standards found in the 2010 Bound Volume of International Financial Reporting Standards, approved at 1 January 2010.
Introduction
This publication contains the consolidated financial statements of a fictitious company, Good Insurance (International) Limited, a limited liability insurance company with subsidiaries (the Group) incorporated and listed in Euroland, with a reporting date of 31 December 2010. Euroland is a fictitious country within Europe. The functional currency of the parent and presentation currency of the group is the euro. These illustrative financial statements have been produced in accordance with the International Financial Reporting Standards (IFRS), for an insurance company that issues life and non-life insurance products (which comprise both general insurance and healthcare products) as well as some investment products. The Group also performs investment management services to policyholders of investment products that do not contain an insurance component. The aim of this publication is to illustrate common IFRS-based disclosures that are specific to the insurance industry. Therefore, some commonly found transactions and their disclosures have either been deliberately omitted or simplified because they are illustrated in other Ernst & Young illustrative financial statement publications. Our series of model accounts includes:
X X X X X X
Good Group (International) Limited Good Group (International) Limited Illustrative interim condensed consolidated financial statements Good Bank (International) Limited Good Insurance (International) Limited Good Real Estate Group (International) Limited Good Investment Fund Limited Illustrative financial statements of a fund whose puttable shares are classed as equity instruments Illustrative financial statements of a fund whose puttable shares are classed as financial liabilities
X X
Look for other industry specific illustrative financial statements that will be added in the future. We strongly encourage readers of this publication to refer to the other model financial statements in our series (available at www.ey.com/ifrs) to gain a greater understanding of other presentation and disclosure requirements. Users should also be aware that the comparative disclosures do not necessarily correspond to the published Good Insurance (International) Limited 2009. IFRS 4 Insurance Contracts is a transaction-based standard built around the definition of an insurance contract. It is not an industry-based entity specific financial reporting standard. Care should be taken to determine when a transaction falls within the scope of this standard. In this publication, we illustrate what we consider to be best practice disclosure and we focus on those areas of IFRS reporting that are heavily reliant on the professional judgment of management. These illustrative disclosures should not be considered as the only acceptable form of presentation, as they are based on best practices observed in the insurance industry and do not attempt to show all possible accounting and disclosure requirements. These illustrative financial statements are not intended to satisfy country or stock market regulations in any given jurisdiction and so what we have illustrated may have to be altered to meet such requirements. The form and content of financial statements are the ultimate responsibility of Group management. It is essential to seek appropriate professional advice in case of doubt in relation to any financial reporting requirement. These illustrative disclosures have reflected professional judgment on the fairness of the various presentations. We believe you will find this a useful guide when preparing your next set of IFRS-based financial statements. If you require any further information on matters included in this publication, please contact your nearest Ernst & Young office, details of which can be found on the Ernst & Young website www.ey.com/ifrs.
Newly identified financial reporting issues not specifically addressed in IFRS Issues where unsatisfactory or conflicting interpretations have developed, or are likely to develop in the absence of authoritative guidance, with a view to reaching a consensus on the appropriate treatment
International Financial Reporting Standards (IFRS) IFRS 1 IFRS 2 IFRS 3 IFRS 3 IFRS 4 IFRS 5 IFRS 6 IFRS 7 IFRS 8 IFRS 9 First-time Adoption of International Financial Reporting Standards Share-based Payment Business Combinations (2005) for acquisition completed before 1 January 2010 Business Combinations (Revised in 2008) Insurance Contracts Non-current Assets Held for Sale and Discontinued Operations Exploration for and Evaluation of Mineral Resources Financial Instruments: Disclosures Operating Segments Financial Instruments: Classification and Measurement(1)
9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9
Good Petroleum
3
Good Insurance
Good Mining
Good Group
Good Bank
International Accounting Standards (IAS) IAS 1 IAS 2 IAS 7 IAS 8 IAS 10 IAS 11 IAS 12 IAS 16 IAS 17 IAS 18 IAS 19 IAS 20 IAS 21 IAS 23 IAS 24 IAS 26 IAS 27 IAS 28 IAS 29 IAS 31 IAS 32 IAS 33 IAS 34 IAS 36 IAS 37 IAS 38 IAS 39 IAS 40 IAS 41 Presentation of Financial Statements Inventories Statement of Cash Flows Accounting Policies, Changes in Accounting Estimates and Errors Events after the Reporting Period Construction Contracts Income Taxes Property, Plant and Equipment Leases Revenue Employee Benefits Accounting for Government Grants and Disclosure of Government Assistance The Effects of Changes in Foreign Exchange Rates Borrowing Costs Related Party Disclosures Accounting and Reporting by Retirement Benefit Plans Consolidated and Separate Financial Statements (Revised in 2008) Investments in Associates Financial Reporting in Hyperinflationary Economies Interests in Joint Ventures Financial Instruments: Presentation Earnings per Share Interim Financial Reporting Impairment of Assets Provisions, Contingent Liabilities and Contingent Assets Intangible Assets Financial Instruments: Recognition and Measurement Investment Property Agriculture
9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9
9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9
9 9 9 9 9 9 9 9 9
9 9 9 9 9 9 9 9 9
9 9 9 9 9
9 9 9 9 9
9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9
9 9 9 9 9
9 9 9
9 9 9 9 9
9 9
9 9
9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9
9 9
9 9 9
9 9
9 9 9 9 9 9 9 9 9
9 9 9
9 9 9 9
9 9
9 9
9 9 9 9 9 9 9 9 9 9
Good Petroleum
Good Insurance
Good Mining
Good Group
Good Bank
Interpretations IFRIC 1 IFRIC 2 IFRIC 4 IFRIC 5 IFRIC 6 IFRIC 7 IFRIC 9 IFRIC 10 IFRIC 12 IFRIC 13 IFRIC 14 IFRIC 15 IFRIC 16 IFRIC 17 IFRIC 18 IFRIC 19 SIC 7 SIC 10 SIC 12 SIC 13 SIC 15 SIC 21 SIC 25 SIC 27 SIC 29 SIC 31 SIC 32 Changes in Existing Decommissioning, Restoration and Similar Liabilities Members Shares in Co-operative Entities and Similar Instruments Determining Whether an Arrangement Contains a Lease Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds Liabilities arising from Participating in a Specific Market Waste Electrical and Electronic Equipment Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies Reassessment of Embedded Derivatives Interim Financial Reporting and Impairment Service Concession Arrangements Customer Loyalty Programmes IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction Agreements for the Construction of Real Estate Hedges of a Net Investment in a Foreign Operation Distributions of Non-cash Assets to Owners Transfers of Assets from Customers Extinguishing Financial Liabilities with Equity Investments Introduction of the Euro Government Assistance No Specific Relation to Operating Activities Consolidation Special Purpose Entities Jointly Controlled Entities Non-Monetary Contributions by Venturers Operating Leases Incentives Income Taxes Recovery of Revalued Non-Depreciable Assets Income Taxes Changes in the Tax Status of an Entity or its Shareholders Evaluating the Substance of Transactions Involving the Legal Form of a Lease Service Concession Arrangements: Disclosures Revenue Barter Transactions Involving Advertising Services Intangible Assets Web Site Costs
9 9
9 9
9 9 9 9
9 9 9 9
9 9 9 9
9 9 9
9 9 9 9
9 9 9 9
9 9
9 This standard or interpretation is reflected in the accounting policies and/or individual transactions with appropriate
note disclosures
(1)
Good Petroleum
5
Good Insurance
Good Mining
Good Group
Good Bank
All standards and interpretations listed above incorporate amendments effective on 1 January 2010, unless otherwise stated. These amendments also include the amendments resulting from Improvements to IFRS issued in May 2008 and April 2009. It is important to note that the IASB may issue new and revised standards and interpretations subsequent to 30 June 2010. Therefore, users of this publication are advised to verify that there has been no change in the IFRS requirements between 30 June 2010 and the date on which their financial statements are authorised for issue. Any standards issued, but not yet effective, need to be considered in the disclosure requirements of a reporting entity.
Changes contained in 2010 edition of Good Insurance (International) Limited Annual Financial Statements
The Good Insurance (International) Limited financial statements have been updated to reflect all new standards and interpretations issued or amended since 31 March 2009. The following standards and interpretations have been illustrated in the 2010 edition, resulting in consequential changes to the accounting policies and other note disclosures. IFRS 3 Business Combinations The IASB issued the revised Business Combinations standard in January 2008 which is effective for financial years beginning on or after 1 July 2009. The standard introduces changes in the accounting for business combinations that will impact the amount of goodwill recognised, the reported results in the period when an acquisition occurs and future reported results. The revised standard has been adopted by the Group together with the revised IAS 27 Consolidated and Separate Financial Statements (see Note 3), including consequential amendments to IFRS 7, IAS 21, IAS 28, IAS 31 and IAS 39 in the reporting period commencing 1 January 2010. IAS 27 Consolidated and Separate Financial Statements In January 2008, the IASB issued the revised IAS 27, affecting consolidated and separate financial statements. IAS 27 (as issued in 2008) requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as an equity transaction. Therefore, such transactions will no longer give rise to goodwill, nor will they give rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The amended standard has been adopted by the Group together with IFRS 3 (Revised) Business Combinations (see Note 3), including consequential amendments to IAS 21, IAS 28, IAS 31 and IAS 39. Improvements to IFRSs In April 2009 and April 2010, the IASB issued its annual amendments to International Financial Reporting Standards (IFRSs) and the related Bases for Conclusions and guidance made. The amendments primarily remove inconsistencies and clarify wording. These amendments, unless otherwise stated, are effective for financial years beginning on or after 1 January 2010. The Group has adopted these revised standards as considered appropriate, however, there are no impacts on the financial statements.
Commentary
In some jurisdictions, the adoption of IFRS for reporting purposes may be subject to a specific legal process (e.g., in the European Union or Australia). In those jurisdictions the effective date may therefore be different from the IASB's.
Listed below are standards and interpretations that have been issued and are effective for financial years 2010 or later, but are not illustrated in these illustrative financial statements
IFRS 1 First-time Adoption of International Financial Reporting Standards (Revised 2009) In July 2009, the IASB issued Additional Exemptions for First-time Adopters (Amendments to IFRS 1). The Group is not a first-time IFRS adopter, therefore, amendments to IFRS 1 have no impact on the financial statements. IFRS 2 Share-based Payment The IASB also issued an amendment to IFRS 2 in June 2009 on the accounting for group cash-settled share-based payment transactions. This amendment is effective for financial years beginning on or after 1 January 2010. This amendment also supersedes IFRIC 8 and IFRIC 11.The Group adopted all amendments that came into effect on 1 January 2010. However, this did not have an impact on the financial position or performance of the Group. IAS 24 Related Party Disclosures (Amendment) The amended standard is effective for annual periods beginning on or after 1 January 2011. It clarifies the definition of a related party to simplify the identification of such relationships and to eliminate inconsistencies in its application. The revised standard introduced a partial exemption of disclosure requirements for government-related entities. Early adoption is permitted for either the partial exemption for government-related entities or for the entire standard. The Group does not expect any impact on its financial position or performance although additional disclosure is required for commitments with related parties after the initial application. IAS 32 Financial Instruments: Presentation Classification of Rights Issues The amendment to IAS 32 is effective for annual periods beginning on or after 1 February 2010 and amended the definition of a financial liability in order to classify rights issues (and certain options or warrants) as equity instruments in cases where such rights are given pro rata to all of the existing owners of the same class of an entitys non-derivative equity instruments, or to acquire a fixed number of the entitys own equity instruments for a fixed amount in any currency. This amendment will have no impact on the Group after initial application. IAS 39 Financial Instruments: Recognition and Measurement Eligible Hedged Items This amendment was issued in July 2008 and is effective for financial years beginning on or after 1 July 2009. It addresses the designation of a one-sided risk in a hedged item, and the designation of inflation as a hedged risk or portion in particular situations. The Group has concluded that the amendment will have no impact on the financial position or performance of the Group, as the Group has not entered into any such hedges. IFRS 9 Financial Instruments: Classification and Measurement IFRS 9 reflects Phase 1 of the Boards work on the replacement of IAS 39 and applies to classification and measurement of financial assets as defined in IAS 39. The standard is effective for annual periods beginning on or after 1 January 2013. In subsequent phases, the Board will address classification and measurement of financial liabilities, hedge accounting and derecognition. The completion of this project is expected in early 2011. The adoption of IFRS 9 will have an effect on the classification and measurement of the Groups financial assets. However, the Group determined that the effect will be quantified in conjunction with the other phases when issued to present a comprehensive picture. IFRIC 14 Prepayments of a Minimum Funding Requirement (Amendment) The amendment to IFRIC 14 is effective for annual periods beginning on or after 1 January 2011 with retrospective application. The amendment provides guidance on assessing the recoverable amount of a net pension asset. The amendment permits an entity to treat the prepayment of a minimum funding requirement as an asset. The amendment is deemed to have no impact on the financial statements of the Group. IFRIC 17 Distribution of Non-cash Assets to Owners This interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. An entity shall apply this Interpretation prospectively for annual periods beginning on or after 1 July 2009. The interpretation has no effect on either the financial position or on the performance of the Group. IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments IFRIC 19 is effective for annual periods beginning on or after 1 July 2010. The interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid. The equity instruments issued are measured at their fair value. In case this cannot be reliably measured, they are measured at the fair value of the liability extinguished. Any gain or loss is recognised immediately in profit or loss. The adoption of this interpretation will have no effect on the financial statements of the Group.
Background facts
The following list highlights a series of important matters that have driven the presentation and disclosures illustrated in this publication. Business environment Stable economic and business environments and product offerings were assumed for both the 2010 and 2009 financial reporting periods. During the year, the Group acquired 80% of the common stock of Good American Life Co, but did not dispose of any businesses. The Group accounted for the 20% non-controlling interests based on the share of the total net assets (see Note 3). In addition, Appendix 4 illustrates the option to fair value the non-controlling interests. Operations Good Insurance (International) Limited is the parent company which operates in three principal areas of business, according to the nature of products and services offered. It provides life insurance, non-life insurance (which comprises general insurance and healthcare) and investment management services to its customers through its four subsidiaries: Good Life Insurance Limited, Good American Life Co Ltd (80% owned), Good Non-Life Insurance Limited and Good Investment Management Services Limited. The parent and the four subsidiaries throughout this publication are collectively referred to as the Group.
X
The life insurance products offered include a wide range of whole life, term assurance, unitised pensions, guaranteed annuity pensions, pure endowment pensions and mortgage endowments. The non-life general insurance products offered include motor, household, commercial and business interruption insurance. The non-life healthcare products provide medical cover to policyholders. Investment management services are provided solely to customers through an investment management services subsidiary.
X X
The Group also has a 20% interest in one non-life insurance entity, Power Insurance Limited, which is involved in the insurance of power stations in Euroland. The Group has no joint venture agreements with any other external parties. Operating segments The Group has determined that the operating segments described above are those under IFRS 8 Operating Segments. IFRS status The Group is an existing preparer of IFRS consolidated financial statements, but to enhance the usability of this publication, additional disclosures have been illustrated if the Group is a first time adopter of IFRS in 2010. These disclosures, as set out under IFRS 1 (Revised 2009) First-time Adoption of International Financial Reporting Standards can be found in Appendix 1. As permitted under IFRS 4 Insurance Contracts, an insurance company is allowed to grandfather its existing local Generally Accepted Accounting Policies (GAAP) adopted for its insurance contracts and investment contracts with discretionary participation features (DPF), within its IFRS accounting framework. The requirement will continue until the IASBs Insurance Contracts Phase II project is completed, which will then determine the recognition and measurement of all insurance contracts on a consistent basis. The Group, therefore, continues with local GAAP for insurance contracts and for investment contracts with a DPF. Product accounting Under local GAAP, the same accounting treatment is applied to insurance contracts with and without DPF and for investment contracts with DPF. Deferred acquisition costs (DAC) and the present value of in-force business (PVIF), i.e., intangible assets, relating to the above contracts are also accounted for under local GAAP. Investment contracts without DPF and the related acquisition costs and intangible assets, are accounted for under IAS 39 Financial Instruments: Recognition and Measurement, IAS 18 Revenue and IAS 38 Intangible Assets, respectively. DPF provide the policyholder with a contractual right to receive, as a supplement to guaranteed benefits, additional benefits payable at the discretion of the insurance company and which are contractually based on the performance of a specified pool of contracts on the profit or loss of the insurance company or other entity that issued the contracts. Under IFRS 4, DPF can be either treated as an element of equity or as a liability, or can be split between the two elements. The Group policy is to treat all DPF as a liability within insurance or investment contract liabilities as appropriate. Risk management As part of the Groups investment strategy to reduce both insurance and financial risk, the Group matches its investments to the liabilities arising from insurance and investment contracts, by reference to the type of benefits payable to contract holders. For each distinct category of liabilities, a separate portfolio of investments is maintained for policyholders and customers.
Taxation Income tax on profit and loss for the year comprises current and deferred tax. Income tax is determined in accordance with Euroland tax law.
IFRS 4 permits the use of alternative sensitivity analysis such as embedded value (EV) or economic capital (EC) instead of IFRS basis for insurance and market risk sensitivity disclosures. This option is only allowed if insurance and market risk sensitivities are managed on that alternate basis. For illustrative purposes EV sensitivity disclosures have been provided in Appendix 3 in accordance with embedded values (EV) principles. In this publication, where a choice is permitted by IFRS, the Group has adopted one of the alternative treatments as appropriate to the circumstances of the Group. The commentary gives further details of which policy has been selected, and why, and summarises the difference in the disclosure requirements.
10
11
Auditors responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We have conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entitys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as at 31 December 2010, and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards. Professional Accountants & Co. 29 January 2011 17 Euroville High Street Euroville
Commentary
The auditors report has been prepared in accordance with ISA 700 (Redrafted) Forming an Opinion and Reporting on Financial Statements which is applicable for audits of financial statements for periods beginning on or after 15 December 2009. The auditors report may differ depending on the requirements of different jurisdictions.
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Notes Gross premiums Premiums ceded to reinsurers Net premiums Fees and commission income Investment income Realised gains Fair value gains and losses Other operating revenue Other revenue Total revenue Gross benefits and claims paid Claims ceded to reinsurers Gross change in contract liabilities Change in contract liabilities ceded to reinsurers Net benefits and claims Finance costs Profit attributable to unit-holders Other operating and administrative expenses Other expenses Total benefits, claims and other expenses Profit before share of profit of an associate Share of profit of an associate Profit before tax Income tax expense Profit for the year Profit attributable to: Equity holders of the parent Non-controlling interests Earnings per share Basic, profit for the year attributable to ordinary equity holders of the parent () Diluted, profit for the year attributable to ordinary equity holders of the parent () 22 10(a) 10(b) 10(c) 10(d) 5(a) 5(b)
2010 000 74,146 (18,756) 55,390 5,364 8,221 213 1,044 91 14,933 70,323 (38,418) 10,273 (7,837) 1,592 (34,390)
2009 000 73,451 (19,112) 54,339 2,231 7,682 93 992 85 11,083 65,422 (39,410) 10,546 (7,172) 1,691 (34,345) (954) (111) (20,378) (21,443) (55,788) 9,634 230 9,864 (1,973) 7,891 7,891 7,891
6 7 8 9
IFRS 7.20(c)(i)
IAS 1.85
IAS 1.82(a)
IFRS 4.IG24 IFRS 4.IG24 IFRS 4.IG24 IFRS 4.IG24 IAS 1.85
11 35 12
(1,066) (267) (22,242) (23,575) (57,965) 12,358 129 12,487 (1,569) 10,918 10,063 855 10,918
IAS 1.85
14
16 16
1.26 1.25
1.07 1.06
13
14
Notes Profit for the year Other comprehensive income Exchange differences on translating foreign operations Net loss on cash flow hedges Net gain on available-for-sale assets Income tax relating to components of other comprehensive income Other comprehensive income for the year, net of tax Total comprehensive income for the year, net of tax Total comprehensive income attributable to: Equity holders of the parent Non-controlling interests
IAS 1.82(g)
18 18 18 17 18
IAS 1.82(i)
Commentary The components of comprehensive income are presented on an aggregated basis in the statement above. Therefore, an additional note is required to present the amount of reclassification adjustments and current year gains or losses. Alternatively, the individual components could have been presented within the statement of comprehensive income. The income tax effect has also been presented on an aggregated basis. Therefore, an additional note disclosure presents the income tax effect of each component. Alternatively, this information could have been presented within the statement of comprehensive income. Paragraph 96 of IAS 1 requires the Group to present a statement of changes in comprehensive income in either a single statement or two statements. The Group has elected to present the statement of comprehensive income in two statements: a statement displaying components of profit or loss (separate income statement) and a second statement beginning with profit and loss and displaying components of other comprehensive income. The Group applies the corridor method for its actuarial gains and losses from its defined benefit pension plan. If entities apply the policy in IAS 19.93A to recognise all actuarial gains and losses in the period in which they occur outside of the income statement, then paragraph 93B of IAS 19 requires entities to present those gains and losses as part of other comprehensive income.
15
Notes Assets Goodwill Intangible assets Deferred expenses Property and equipment Investment properties Investment in an associate Financial instruments Derivative financial instruments Held to maturity financial assets Loans and receivables Available-for-sale financial assets Financial assets at fair value through profit or loss Reinsurance assets Income tax receivable Insurance receivables Accrued income Cash and cash equivalents Total assets Equity and liabilities Equity attributable to equity holders of parent Issued share capital Additional paid-in capital Retained earnings Revaluation reserves Total ordinary shareholders equity Other equity instruments Non-controlling interests Total equity Liabilities Insurance contract liabilities Investment contract liabilities Pension benefit obligation Deferred revenue Borrowings Derivative financial instruments Other financial liabilities Deferred tax liability Net asset value attributable to unit-holders Insurance payables Trade and other payables Total liabilities Total equity and liabilities 20 21 30 23 24 22 25 26(a) 26(b) 26(c) 26(d) 27 28(a) 29 31 32
2010 000 9,445 39,138 13,446 4,066 4,199 2,120 2,182 2,104 7,264 109,677 35,249 36,521 2,995 35,272 1,698 22,723 328,099
2009 000 2,924 444 11,477 3,750 3,943 1,991 1,240 1,677 6,137 79,417 21,189 34,711 2,812 19,914 1,557 27,798 220,981
IAS 1.51(d), (e) IAS 1.60 IAS 1.54(c) IAS 1.54(c) IFRS 4.37(b) IAS 1.54(a) IAS 1.54(b) IAS 1.54(e), IAS 28.38 IAS 1.54(d), IFRS 7.8
IFRS 4.37(b) IAS 1.54(n) IFRS 4.37(b) IAS 1.77 IAS 1.54(i)
IAS 1.54(r)
42 42
43
IAS 1.54(r) IAS 1.54(r) IAS 1.54(r) IAS 1.54(r) IAS 1.54(r) IAS 1.54(r) IAS 1.54(q)
33 34 36 40 37 25 38 28(b) 35 39 41
176,712 15,220 4,449 4,365 16,562 1,782 7,743 5,452 520 5,157 17,307 255,269 328,099
126,260 11,558 4,152 4,334 21,064 1,758 7,272 1,848 367 4,841 11,638 195,092 220,981
IFRS 4.37(b) IAS 1.54(m), IFRS 4.37(b) IAS 1.55, IAS 1.78(d) IAS 1.55 IAS 1.54(m), IFRS 7.8(e), (f) IAS 1.54(m), IFRS 7.8 (e), (f) IAS 1.54(m), IFRS 7.8 (e), (f) IAS 1.54(o), IAS 1.54(o) IFRS 4.37(b) IAS 1.54(k)
Commentary
Paragraph 60 of IAS 1 requires companies to present assets and liabilities either in order of their liquidity or by a separate classification on the face of the statement of financial position for current and non-current assets, and current and non-current liabilities, whichever provides information that is most reliable and relevant. The Group has presented its assets and liabilities in order of liquidity. Deferred acquisition costs are included within deferred expenses rather than within intangible assets or other assets, which are alternative classification options in insurance practice. The previous version of IAS 1 used the titles balance sheet and cash flow statement to refer to two of the financial statements considered to be part of the complete set. The current standard refers to these statements as the statement of financial position and statement of cash flows. However, the revised standard does not require the use of these terms (IAS 1.10). The Group has not presented three statements of financial position in these financial statements because it has not applied an accounting policy retrospectively, made a retrospective restatement of items in its financial statements, or reclassified items in its financial statements that affected the statement of financial position at the beginning of the earliest comparative period (IAS 1.10(f)). Good Group (International) Limited contains an illustrative disclosure of a statement of financial position at the beginning of the comparative period and related notes where the changes affect the beginning of the earliest comparative period.
16 Good Insurance (International) Limited
Notes
IAS 1.106 IAS 1.51(d), (e) IAS 1.106(d) IAS 1.106(d) (i)
18
4,121
(25)
(38)
4,058
199
4,257
1,253
26,672 (302)
10,063
4,121
(25)
(38)
1,054
15,175 27,925
43
52
52
43
(1)
(1)
(1)
19 15
14 (3,236)
14 (3,236)
14
IFRS 2.50
8,638
27,415
20,297
8,145
(47)
(38)
64,410
52
7,314 8,368
Commentary The Group has elected to present all the information required for the statement of changes in equity on the face of the statement. However, transactions with equity holders acting in their capacity as equity holders and the reconciliation of retained earnings, contributed equity and other reserves could alternatively be presented in the notes to the financial statements. Paragraph 7 of IFRS 2 requires entities to recognise an increase in equity when goods or services are received in an equity-settled sharebased payment transaction. However, IFRS 2 does not specify where in equity this should be recognised. The Group has elected to recognise the credit in retained earnings.
17
Notes
IAS 1.106(d)
18
7,891
2,308 2,308
(17) (17)
2,291 10,182
2,291 10,182
47
50
50
42 19 15
7,385
(2) 1,045
10 (2,087) 13,457
4,024
(22)
18
Notes Operating activities Cash generated from operating activities Dividend income received Interest income received Finance costs paid Rental income on investment properties Purchase of investment properties Income tax paid Net cash flows from operating activities Investing activities Acquisition of subsidiaries, net of cash acquired Interest income received on loans to related parties Proceeds from sale of property and equipment Purchase of intangible assets Increase in loans to related parties Purchase of property and equipment Net cash flows from investing activities Financing activities Proceeds from exercise of share options Transaction costs for equity issue Issue of other equity instruments Proceeds from bank loans Repayment of bank loans Finance costs paid on bank loan and bond borrowings Dividends paid to equity holders of the parent Net cash flows from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at 1 January Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at 31 December
Commentary
2010 000 4,518 3,157 3,709 (422) 178 (203) (1,564) 9,373
2009 000 6,310 3,015 4,435 (312) 170 (219) (1,444) 11,955
46
24 28(a)
IAS 7.21
21 23
IAS 7.39 IAS 7.31 IAS 7.16(b) IAS 7.16(a) IAS 7.16(c) IAS 7.16(a) IAS 7.10
42 42 43
15
IAS 7.17(a)
IAS 7.17(a) IAS 7.17(c) IAS 7.17(d) IAS 7.31 IAS 7.31 IAS 7.10
32
Paragraph 18 of IAS 7 permits a company to report its cash flows from operating activities using either the direct method or the indirect method. The Group presents its cash flows using the indirect method. The direct method is illustrated in Appendix 5. The Group reconciled from profit before tax to net cash flow from operating activities. However, a reconcilliation from profit after tax is also acceptable under IAS 7. Cash flows representing the assets backing equity holders are classified as investment activities. The cash flows in the operating activities are all attributable to policyholders. Paragraph 33 of IAS 7 permits interest paid to be shown as operating or financing activities, and interest received to be shown as operating or investing activities, as deemed relevant for the entity. For cash flow purposes, the Group classifies the cash flows for the acquisition and disposal of financial assets as operating cash flows, as the purchase of these investments is funded from the net cash flows associated with the origination of insurance and investment contracts and the payment of benefits and claims incurred for such insurance and investment contracts, which are respectively treated under operating activities. For cash flow purposes, cash and cash equivalents consist of cash and cash equivalents as defined in paragraph 6 of IAS 7, net of outstanding bank overdrafts, as permitted by paragraph 8 of IAS 7.
19
The Group presents its statement of financial position broadly in order of liquidity. An analysis regarding recovery or settlement within twelve months after the reporting date (current) and more than 12 months after the reporting date (non-current) is presented in the notes.
IAS 1.60, 61
IAS 27.12
IAS 27.12 IAS 27.26 IAS 27.22 IAS 27.23 IAS 27.24
IAS 27.20
20
Derecognises the assets (including goodwill) and liabilities of the subsidiary Derecognises the carrying amount of any non-controlling interest Derecognises the cumulative translation differences recorded in equity Recognises the fair value of the consideration received Recognises the fair value of any investment retained Recognises any surplus or deficit in profit or loss Reclassifies the parents share of components previously recognised in other comprehensive income to profit or loss or retained earnings, as appropriate.
IAS 27.34
The Group has invested in a number of specialised investment vehicles such as open-ended investment companies (OEICs) and unit trusts. The Groups percentage ownership in these vehicles can fluctuate from day to day according to the Groups participation in them. Where the Group controls such vehicles, they are consolidated with the interest of third parties shown as net asset value attributable to unit-holders in the statement of financial position. Where the Group does not control such vehicles, these are designated as financial investments held at fair value through profit or loss. Basis of consolidation prior to 1 January 2010 Certain of the above-mentioned requirements were applied on a prospective basis. The following differences, however, are carried forward in certain instances from the previous basis of consolidation:
X
Acquisitions of non-controlling interests, prior to 1 January 2010, were accounted for using the parent entity extension method, whereby the difference between the consideration and the book value of the share of the net assets acquired were recognised in goodwill. Losses incurred by the Group were attributed to the non-controlling interest until the balance was reduced to nil. Any further excess losses were attributed to the parent, unless the non-controlling interest had a binding obligation to cover these. Losses prior to 1 January 2010 were not reallocated between non-controlling interest and the parent shareholders. Upon loss of control, the Group accounted for the investment retained at its proportionate share of net asset value at the date control was lost. The carrying value of such investments at 1 January 2010 has not been restated.
IAS 1.112, IAS 1.117(a),(b) IFRS 4.37(a) IFRS 4 Appendix A
IFRS 4 Appendix A
21
Likely to be a significant portion of the total contractual benefits The amount or timing of which is contractually at the discretion of the issuer That are contractually based on:
X X X
The performance of a specified pool of contracts or a specified type of contract Realised and or unrealised investment returns on a specified pool of assets held by the issuer The profit or loss of the company, fund or other entity that issues the contract
Commentary Paragraphs 34 and 35 of IFRS 4 require the guaranteed element of an insurance or investment DPF contract to be recognised as a liability, but permit the discretionary element of a DPF to be treated as either an element of equity or as a liability, or tobe split between the two categories. The Groups accounting policy is to treat all DPF features, both guaranteed and discretionary, as liabilities and to include them within insurance or investment contract liabilities as appropriate in the statement of financial position.
Derivatives embedded in an insurance contract or an investment contract with DPF are separated and fair valued through the income statement unless the embedded derivative is itself an insurance contract or investment contract with DPF. The derivative is also not separated if the host insurance contract and/or investment contract with DPF is measured at fair value through the income statement. (b) Business combinations and goodwill Business combinations from 1 January 2010 Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the Group has an option to measure any non-controlling interests in the acquiree either at fair value or at the non-controlling interests proportionate share of the acquirees identifiable net assets. In respect of the acquisition of Good American Life Co in 2010, the Group has measured the non-controlling interests at its proportionate share of the net assets acquired. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. No reclassification of insurance contracts is required for business combination. However, this does not preclude the Group from reclassifying insurance contracts to accord with its own policy only if classification needs to be made on the basis of the contractual terms and other factors at the inception or modification date. If the business combination is achieved in stages, the acquisition date fair value of the acquirers previously held equity interest in the acquiree is remeasured to fair value as at the acquisition date through profit or loss. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or a liability, will be recognised as measurement period adjustments in accordance with the applicable IFRS. If the contingent consideration is classified as equity, it will not be remeasured and its subsequent settlement will be accounted for within equity Goodwill is initially measured at cost, being the excess of the fair value of the consideration transferred over the Groups share in the net identifiable assets acquired and liabilities assumed and net of the fair value of any previously held equity interest in the acquiree. Fair values for life Insurance contracts are derived from embedded value (EV) principles developed by the Euroland Institute of Actuaries. Fair values for non-life insurance contracts are derived by calculating the present value of claims reserves. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.
IFRS 4.7, 8, 9
IFRS 3.19
IFRS 3.42
IFRS 3.58
22
IAS 36.86
(c) Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is reflected in the income statement in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the income statement in the expense category consistent with the function of the intangible asset. Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash generating unit level. Such intangibles are not amortised. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised.
Good Insurance (International) Limited
IAS 38.24 IAS 38.83 IAS 38.74 IAS 38.57
IAS 38.118(d)
IAS 38.113
23
24
IAS 36.59 IAS 36.30 IAS 36.55 IAS 36.25 IAS 36.33
IAS 36.60
IAS 36.110
IAS 36.114
25
Commentary
Paragraph 9 of IAS 366 permits the annual impairment test for goodwill and intangible assets with indefinite useful lives to be performed at any time during the year provided it is undertaken at the same time each year. Different goodwill and intangible assets may be tested at different times.
(e) Deferred expenses Deferred acquisition costs (DAC) Those direct and indirect costs incurred during the financial period arising from the writing or renewing of insurance contracts and/or investment contracts with DPF, are deferred to the extent that these costs are recoverable out of future premiums. All other acquisition costs are recognised as an expense when incurred. Subsequent to initial recognition, DAC for life insurance and investment contracts with DPF are amortised over the expected life of the contracts as a constant percentage of expected premiums. DAC for general insurance and health products are amortised over the period in which the related revenues are earned. The reinsurers share of deferred acquisition costs is amortised in the same manner as the underlying asset amortisation is recorded in the income statement. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period and are treated as a change in an accounting estimate. An impairment review is performed at each reporting date or more frequently when an indication of impairment arises. When the recoverable amount is less than the carrying value an impairment loss is recognised in the income statement. DAC are also considered in the liability adequacy test for each reporting period. DAC are derecognised when the related contracts are either settled or disposed of. Deferred expenses-Reinsurance commissions Commissions receivable on outwards reinsurance contracts are deferred and amortised on a straight line basis over the term of the expected premiums payable. Deferred expenses-Investment management services Those incremental costs incurred during the financial period directly attributable to securing investment contracts without DPF, under which the Group will render investment management services, are deferred and recognised as an asset, to the extent that these costs can be identified separately, measured reliably and it is probable that these costs will be recovered out of future revenue margins. Incremental cost is a cost that would not have been incurred if the Group had not secured the investment contract without DPF. All other origination costs are recognised as an expense when incurred. For contracts involving both the origination of a financial liability and the provision of investment management services, only the transaction costs allocated to the servicing component are deferred. The other transaction costs are included in the financial liability. Subsequent to initial recognition, these costs are amortised in line with fee income, which typically varies between 10 and 20 years. Amortisation is recorded in the income statement. An impairment review is performed at each reporting date, or more frequently, when an indication of impairment arises. When the recoverable amount is less than the carrying value, an impairment loss is recognised in the income statement. Future servicing rights are also considered in establishing an onerous contract provision for each reporting period. Investment management services are derecognised when the related contracts are settled or disposed of.
IAS 18 Appendix 14(b)(iii) IFRS 4.37(a)
26
IAS 1.10 IAS 1.117(a), (b) IAS 16.12, 73(a) IAS 16.1, 30 IAS 16.14
Property:
over 20 years
Equipment: 5 to 15 years
IAS 16.51
The assets residual values, and useful lives and method of depreciation are reviewed and adjusted if appropriate at each financial year end and adjusted prospectively, if appropriate. Impairment reviews are performed when there are indicators that the carrying value may not be recoverable. Impairment losses are recognised in the income statement as an expense. An item of property and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year the asset is derecognised.
Commentary
The Group has elected to carry property and equipment at historical cost less accumulated depreciation and impairment. IAS 16 also permits property and equipment to be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and impairment.
(g) Investment properties Investment properties are measured initially at cost, including transaction costs. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met; and excludes the costs of day-to-day servicing of an investment property. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the reporting date. Gains or losses arising from changes in the fair values of investment properties are included in the income statement in the year in which they arise. Fair values are evaluated annually by an accredited external, independent valuer, applying a valuation model recommended by the International Valuation Standards Committee. Investment properties are derecognised either when they have been disposed of, or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognised in the income statement in the year of retirement or disposal. Transfers are made to or from investment property only when there is a change in use evidenced by the end of owner-occupation, commencement of an operating lease to another party or completion of construction or development. For a transfer from investment property to owner occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner-occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under property and equipment up to the date of the change in use. When the Group completes the construction or development of a self constructed investment property, any difference between the fair value of the property at that date and its previous carrying amount is recognised in the income statement.
Commentary The Group has elected to carry investment property at fair value. Both IAS 16 and IAS 40 permit property, plant and equipment and investment properties to be carried at historic cost less provisions for depreciation and impairment. In these circumstances disclosures about the cost basis and depreciation rates would be required. In addition, IAS 40 would require note disclosure about the fair value of any investment property recorded at cost. Therefore, companies would still need to determine the fair value.
IAS 40.20 IAS 40.33 IAS 40.75(a) IAS 40.35
IAS 40.75(e)
27
IAS 23.27
IAS 28. 18
28
IAS 39.9
The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or liabilities or recognising gains or losses on a different basis. The assets and liabilities are part of a group of financial assets, financial liabilities or both which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy.
IAS 39.43 IAS 39.55(a)
or
X
These investments are initially recorded at fair value. Subsequent to initial recognition, these investments are remeasured at fair value. Fair value adjustments and realised gains and losses are recognised in the income statement. The Group evaluated its financial assets at fair value through profit and loss (held for trading) whether the intent to sell them in the near term is still appropriate. When the Group is unable to trade these financial assets due to inactive markets and managements intent to sell them in the foreseeable future significantly changes, the Group may elect to reclassify these financial assets in rare circumstances. The reclassification to loans and receivables, available-for-sale or held to maturity depends on the nature of the asset. This evaluation does not affect any financial assets designated at fair value through profit or loss using the fair value option at designation.
29
IAS 39.56
30
IFRS 7
The rights to receive cash flows from the asset have expired The Group retains the right to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a pass-through arrangement; and either: (a) the Group has transferred substantially all the risks and rewards of the asset; or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Group has transferred its right to receive cash flows from an asset or has entered into a passthrough arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Groups continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. (l) Impairment of financial assets The Group assesses at each reporting date whether a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred loss event) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Financial assets carried at amortised cost For financial assets carried at amortised cost, the Group first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss on assets carried at amortised cost has been incurred, the amount of the impairment loss is measured as the difference between the carrying amount of the asset and the present value of estimated future cash flows (excluding future expected credit losses that have not been incurred) discounted at the financial assets original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.
IAS 39.30(a)
IAS 39.AG84 IFRS 7.16 IFRS 7.B5(d)(i) IFRS 7.B5(d)(ii) IAS 39.65 IAS 39.AG93
31
IAS 39.65
IAS 39.AG87
IAS 39.AG89
32
IAS 1.10
IAS 32.42
IAS 1.32
IAS 39.55(a)
IFRS 7.22(b)
Fair value hedges, when the hedge exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment, or an identified portion of such asset, liability or firm commitment, that is attributable to a particular risk Cash flow hedges, when they hedge exposure to variability in cash flows of a recognised asset or liability or a highly probable forecasted transaction Hedges of a net investment in a foreign operation
IAS 39.86(a)
IAS 39.86(b)
The following criteria must be in place before the Group will use hedge accounting:
X
Formal documentation of the hedging instrument, hedged item, hedging objective, strategy and relationship is prepared before hedge accounting is applied. The hedge is documented at inception showing that it is expected to be highly effective in offsetting the risk in the hedged item throughout the reporting period and the hedge is effective on an ongoing basis. For a cash flow hedge, a forecast transaction that is the subject of the hedge must be highly probable and must present an exposure to variations in cash flows that could ultimately affect the income statement.
33
IAS 1.10
IAS 39.92
IAS 39.93
IAS 39.91
IAS 39.97-100
IAS 39.101
IAS 1.60
Where the Group will hold a derivative as an economic hedge (and does not apply hedge accounting) for a period beyond 12 months after the reporting date, the derivative is classified as non-current (or separated into current and non-current portions) consistent with the classification of the underlying item. Embedded derivates that are not closely related to the host contract are classified consistent with the cash flows of the host contract. Derivative instruments that are designated as, and are effective hedging instruments, are classified consistent with the classification of the underlying hedged item. The derivative instrument is separated into a current portion and non-current portion only if a reliable allocation can be made.
34
IFRS 7.27
IFRS 7.27
IAS 39.46(c)
IFRS 4.37(b)(i)
35
IAS 7.8
Commentary
The Group has included bank overdrafts within cash and cash equivalents as they are considered an integral part of the Groups cash management.
(s) Taxes Current income tax Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date in the countries where the Group operates and generates taxable income. Current income tax assets and liabilities also include adjustments for tax expected to be payable or recoverable in respect of previous periods. Current income tax relating to items recognised directly in equity or other comprehensive income is recognised in equity or other comprehensive income and not in the income statement. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. The income tax charge is analysed between tax in respect of policyholders returns and the balance which represents the tax on equity holders returns. The income tax charge in respect of policyholders returns reflects the movement in current and deferred income tax recognised in respect of those items of income, gains and expenses, which inure to the benefit of policyholders.
IAS 12.46
36
IAS 1.10
When the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
IAS 12.22(c)
IAS 12.39
Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except:
X
IAS 12.34
Where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.
IAS 12.24
IAS 12.44
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Sales taxes and premium taxes Revenues, expenses and assets are recognised net of the amount of sales taxes and premium taxes except:
X
IAS 12.47
IAS 12.61A
IAS 12.71
IAS 18.8
Where the sales or premium tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable. Receivables and payables that are stated with the amount of sales or premium tax included.
Outstanding net amounts of sales or premium tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.
37
IFRIC 4.17
IAS 17.27
IAS 17.33
The assets and liabilities of foreign operations are translated into euros at the rate of exchange prevailing at the reporting date and their income statements are translated at exchange rates prevailing at the date of the transactions. The exchange differences arising on the translation are recognised in other comprehensive income. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in the income statement. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate.
IAS 21.47
38
IFRS 4.37(a)
39
IFRS 4.37(a)
40
41
IAS 1.10
Deliver cash or another financial asset to another entity. Exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the Group.
If the Group does not have an unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation, the obligation meets the definition of a financial liability. (ad) Pensions and other post employment benefits The Group operates a defined benefit pension plan, which requires contributions to be made to a separately administered fund. The cost of providing benefits under the defined benefit plan is determined separately using the projected unit credit valuation method. Actuarial gains and losses are recognised as income or expense when the net cumulative unrecognised actuarial gains and losses at the end of the previous reporting year exceed 10% of the higher of the defined benefit obligation and the fair value of plan assets at that date. These gains and losses are recognised over the expected average remaining working lives of the employees participating in the plan. The past service cost is recognised as an expense on a straight-line basis over the average period until the benefits become vested. If the benefits vest immediately following the introduction of, or changes to, a pension plan, the past service cost is recognised immediately. The defined benefit asset or liability comprises the present value of the defined benefit obligation (using a discount rate based on high quality corporate bonds, as explained in Note 2.5), less past service costs and actuarial gains and losses not yet recognised and less the fair value of plan assets out of which the obligations are to be settled directly. Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurance policies. Plan assets are not available to creditors of the Group nor can they be paid directly to the Group. Fair value is based on market price information and, in the case of quoted securities, it is the published bid price. The value of any defined benefit asset is restricted to the sum of any past service cost and actuarial gains and losses not yet recognised and the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.
IFRS 4.37(a), (e) IAS 19.120A(b) IAS 19.64 IAS 12.120A(a) IAS 19.92 IAS 19.93
IAS 19.96
IAS 19.58A
Commentary
The Groups policy for defined benefit plans is to recognise actuarial gains and losses when the cumulative unrecognised actuarial gains and losses of the previous period exceed 10% of the higher of the defined benefit obligation and the fair value of the plan assets at that date. This is sometimes referred to as the corridor approach. Paragraph 93A of IAS 19 also allows other recognition policies. Where the entity elects to recognise all actuarial gains and losses directly in equity, those gains and losses should be presented as part of other comprehensive income. However, all other disclosures about pension plans remain the same.
(ae) Deferred revenue Initial and other front-end fees received for rendering future investment management services relating to investment contracts without DPF, are deferred and recognised as revenue when the related services are rendered.
IAS 18 Appendix 14(b)(iii)
42
IAS 37.68
IFRS 2.13A
43
IAS 10.13
44
IAS 18.30(c)
45
IAS 8.14,15
IFRS 2 Share-based Payment: Group Cash-settled Share-based Payment Transactions effective 1 January 2010 IFRS 3 Business Combinations (Revised) and IAS 27 Consolidated and Separate Financial Statements (Amended) effective 1 July 2009 including consequential amendments to IFRS 7, IAS 21, IAS 28, IAS 31 and IAS 39 IAS 39 Financial Instruments: Recognition and Measurement Eligible Hedged Items effective 1 July 2009 IFRIC 17 Distributions of Non-cash Assets to Owners effective 1 July 2009 Improvements to IFRSs (April 2009), the effective date of each amendment is included in the IFRS affected
X X X
Adoption of these revised standards and interpretations did not have any material effect on the financial performance or position of the Group. They did, however, give rise to additional disclosures in some occasions. The principal effects of these changes are as follows: IFRS 3 Business Combinations (Revised) and IAS 27 Consolidated and Separate Financial Statements (Amended) IFRS 3 (Revised) introduces significant changes in the accounting for business combinations occurring after this date. Changes affect the valuation of non-controlling interest, the accounting for transaction costs, the initial recognition and subsequent measurement of a contingent consideration and business combinations achieved in stages. These changes will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs and future reported results. IAS 27 (Amended) requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners. Therefore, such transactions will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes by IFRS 3 (Revised) and IAS 27 (Amended) will affect future acquisitions or loss of control of subsidiaries and transactions with non-controlling interests. The change in accounting policy was applied prospectively and had no material impact on earnings per share. Listed below are standards and interpretations that have been issued, but have no significant impacts on the financial statements IFRS 1 First-time Adoption of International Financial Reporting Standards (Revised) In July 2009, the IASB issued Additional Exemptions for First-time Adopters (Amendments to IFRS 1). The Group is not a first time IFRS adopter and therefore amendments to IFRS 1 have no impact on the financial statements. IFRS 2 Share-based Payment (Revised) The IASB issued an amendment to IFRS 2 that clarified the scope and the accounting for group cash-settled share-based payment transactions. The Group adopted this amendment as of 1 January 2010. It does not have an impact on the financial position or performance of the Group. IAS 39 Financial Instruments: Recognition and Measurement Eligible Hedged Items The amendment clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as a hedged item. This also covers the designation of inflation as a hedged risk or portion in particular situations. The Group has concluded that the amendment has no impact on the financial position or performance of the Group, as the Group has not entered into any such hedges.
IAS 8.28
46
IFRS 2 Share-based Payment: the amendment clarifies that the contribution of a business on formation of a joint venture and combinations under common control are not within the scope of IFRS 2 and IFRS 3. It will be applied retrospectively for annual periods beginning on or after 1 July 2009 with early application permitted. This has no impact on the Group as there are no such activities during 2010. IFRS 5 Non-current Assets Held for Sale and Discontinued Operations: amendment clarifies the disclosure requirements for non-current assets or disposal groups classified as held for sale are only those set out in IFRS 5 although the general requirements of IAS 1 still apply to them. It is effective for annual periods beginning on or after 1 January 2010 and applied prospectively. This has no impact on the Group as the Group has no discontinued operations or held for sale assets that fall into the scope of IFRS 5. IFRS 8 Operating Segments: amendment clarifies that segment assets and liabilities need only be reported when those assets and liabilities are included in measures that are used by the chief operating decision maker. It is effective for annual periods beginning on or after 1 January 2010 and applied retrospectively. This has no impact on the Group as the Groups segment assets and liabilities are used by the chief operating decision maker hence be reported on the financial statements. IAS 1 Presentation of Financial Statements: amendment clarifies that if the conversion option of a convertible instrument can be exercised by the holder at any time, the liability component would be classified as current. It is applicable retrospectively to annual periods beginning on or after 1 January 2010. This has no impact on the Group as the Group does not hold convertible financial instruments that are classified as liability. IAS 7 Statement of Cash Flows: amendment explicitly states that only expenditure that results in a recognised asset can be classified as a cash flow from investing activities. It is applicable retrospectively to annual periods beginning on or after 1 January 2010. This has no impact on the Group as the cash flow from investing activities does not include expenditures that results in recognised assets. IAS 17 Leases: the amendment removes the specific guidance on classifying leases of land and of buildings as operating or finance leases such that only the general guidance remains. It is effective for annual periods beginning on or after 1 January 2010 and applied retrospectively unless information necessary to apply the amendment retrospectively is not available. This has no impact on the Groups financial statements as the Group does not own any land. IAS 18 Revenue: the Board has added guidance to determine whether an entity is acting as a principal or as an agent. The Group has reassessed its business relationships and concluded that this does not result in any change to existing recognition of revenue. IAS 36 Impairment of Assets: The amendment clarified that the largest unit permitted for allocating goodwill, acquired in a business combination, is the operating segment as defined in IFRS 8 before aggregation for reporting purposes. The amendment has no impact on the Group as the annual impairment test is performed before aggregation. IAS 39 Financial Instruments: Recognition and Measurement: amendment clarifies the assessment of loan prepayment penalties as embedded derivatives, the scope exemption for contracts associated with a business combination and the accounting treatment for gains and losses on cash flow hedges. IFRIC 9 Reassessment of Embedded Derivatives: amendment clarifies that IFRIC 9 does not apply to embedded derivatives in contracts acquired in a combination between entities under common control or the formation of a joint venture. This has no impact on the Group as the Group does not have any joint venture business. IFRIC 16 Hedges of a Net Investment in a Foreign Operation: amendment makes amendment to the restriction on the entity that can hold hedging instruments. This has no impact on the Group as the Group does not hedge for the foreign operations.
47
48
49
Commentary
Paragraph 125 of IAS 1 requires an entity to disclose significant judgments applied in preparing the financial statements and significant estimates that involve a high degree of estimation uncertainty. The disclosure requirements go beyond those requirements that already exist in some other IFRS such as IAS 37. These disclosures represent a very important source of information in the financial statements because they highlight those areas in the financial statements that are most prone to change in the foreseeable future. Therefore, any information given should be sufficiently detailed to help the reader of the financial statements understand the impact of possible significant changes.
50
Commentary
Paragraph 30 of IAS 8 requires disclosure of those standards that have been issued, but are not yet effective and that provide known or reasonably estimable information to enable users to assess the possible impact of the application of such IFRSs on an entitys financial statements. Therefore, the Group has listed standards and interpretations that are not yet effective, which it reasonably expects to be applicable at a future date (i.e., omitting to list amendments that have no impact, such as IFRS 1 or IAS 34).
51
IFRS 3.B64(d)
IFRS 3.B64(o)(i)
37,715 13,500 7,683 1,551 60,162 2,547 18,228 141,386 (63,027) (5,268) (2,525) (15,713) (86,533) 54,853
25,143 9,000 5,122 1,034 40,108 1,698 12,152 94,257 (42,018) (3,512) (1 683) (10,475) (57,688) 36,569 (7,314) 29,255 6,521 35,776
15,750 1,551 64,013 2,547 20,561 104,422 (64,535) (3,602) (1,005) (15,713) (84,855) 19,567
10,500 1,034 42,675 1,698 13,707 69,614 (43,023) (2,401) (670) (10,475) (56,569) 13,045
Gross insurance liabilities (Note 33) Gross liability for investment contracts (Note 34) Deferred income tax liability (Note 28(b)) Other liabilities Total Identifiable net assets Non-controlling interest measured at share of net assets Total net assets acquired Goodwill arising on acquisition (Note 20) Total consideration
52
IFRS 4.BC150
IFRS 3.B64(k)
IFRS 3.B64(m)
53
Commentary
Paragraph 31 of FRS 4 requires an insurer to measure the value of the insurance liabilities assumed and insurance assets acquired in a business combination at fair value in order to comply with IFRS 3. The Insurer is permitted, but not required, to use an expanded presentation that splits the fair value of acquired insurance contracts into: (i) a liability measured in accordance with the insurers accounting policies for insurance contracts that it issues; and (ii) an intangible asset, representing the difference between the fair value of the contractual insurance rights acquired and insurance obligations assumed and the amount described in (i). The Group has used the expanded presentation in respect of the Good American Life Co. The Group has derived the fair value of the insurance liability based on the principles laid out under Embedded Value reporting, as IFRS currently does not prescribe the determination of the fair value of an Insurance liability. The intangible asset (PVIF) represents the difference between the fair value of the insurance liabilities determined under this methodology, and the value of the insurance liabilities under the Groups existing accounting practices. Paragraph 23 of IFRS 3 requires recognition of contingent liabilities if the fair value can be measured reliably and if it is a present obligation that arises from past events. In the illustrative example given, the Group has assumed that no contingent liabilities are recognised. IFRS 3 provides an option on a transaction by transaction basis on the recognition of non-controlling interest (minority interests). The entity may choose the fair value of the non-controlling interest, or choose to recognise its respective share of the total net assets. The Group has elected to recognise the non-controlling interest at its respective share of the total assets. If the initial accounting for a business combination has been determined provisionally, paragraph B67 of IFRS 3. requires entities to disclose this fact and provide further details.
4. Segment information
For management purposes, the Group is organised into business units based on their products and services and has three reportable operating segments as follows:
X
IFRS 8.22(a)
The life insurance segment offers a wide range of whole life, term assurance, unitised pensions, guaranteed pensions, pure endowment pensions and mortgage endowment products. The non-life insurance segment comprises both general insurance and healthcare. General insurance products offered include motor, household, commercial and business interruption insurance. Non-life healthcare contracts provide medical cover to policyholders. The investment management segment provides investment management services to policyholders through the investment management services subsidiary.
IFRS 8.22(b)
No operating segments have been aggregated to form the above reportable operating segments. Segment performance is evaluated based on profit or loss which in certain respects is measured differently from profit or loss in the consolidated financial statements. Group financing (including finance costs) and income taxes are managed on a group basis and are not allocated to individual operating segments. No inter-segment transactions occurred in 2010 and 2009. If any transaction were to occur, transfer prices between operating segments are set on an arms length basis in a manner similar to transactions with third parties. Segment income, expenses and results will include those transfers between business segments which will then be eliminated on consolidation.
IFRS 8.25
IFRS 8.27(a)
54
Life insurance 000 Gross premiums Premiums ceded to reinsurers Net premiums Fees and commission income Investment income Gains and losses and other operating revenue Other revenue Segment revenue Gross benefits and claims paid Claims ceded to reinsurers Gross change in contract liabilities Change in contract liabilities ceded to reinsurers Net benefits and claims Finance costs Profit attributable to unit-holders Depreciation and amortisation Other operating and administrative expenses Other expenses Segment benefits, claims and other expenses Share of profit of an associate Segment results 50,245 (12,781) 37,464 3,889 5,751 953 10,593 48,057 (22,977) 6,412 (5,396) 993 (20,968) (98) (827) (16,307) (17,232)
Total 000 74,146 (18,756) 55,390 5,364 8,221 1,348 14,933 70,323 (38,418) 10,273 (7,837) 1,592 (34,390) (1,066) (267) (1,007) (21,235) (23,575)
IFRS 8.23(a)
IFRS 8.23((c)
IFRS 8.23(f)
IFRS 8.23(d)
IFRS 8.23(e)
(38,200) 9,857
(460) 37
(3,991) (3,991)
Segment results for each segment do not include finance costs on group borrowings or certain corporate expenses such as depreciation on buildings occupied by the group head office. No impairment losses in respect of goodwill and other intangibles have been recognised during the year.
IAS 36.129(a)
55
Total 000 73,451 (19,112) 54,339 2,231 7,682 1,170 11,083 65,422 (39,410) 10,546 (7,172) 1,691 (34,345) (954) (111) (427) (19,951) (21,443)
IFRS 8.23(a)
IFRS 8.23(c)
IFRS 8.23(f)
IFRS 8.23(d)
IFRS 8.23(e)
(37,121)
(204)
(3,366) (3,366)
6,911
191
Segment results for each segment do not include finance costs on group borrowings or certain corporate expenses such as depreciation on buildings operated by the group head office. No impairment losses in respect of goodwill and other intangibles have been recognised during the year.
IAS 36.129(a)
56
Total 000 48,583 2,120 156,476 36,521 35,272 49,127 328,099 176,712 15,220 520 62,817 255,269
IFRS 8.24(a)
IFRS 8.23
IFRS 8.23
Segment assets do not include current tax (2,995,000) or properties occupied by group head office (1,292,000). Segment liabilities do not include deferred tax (5,452,000), bank loans (14,788,000) or certain trade payables (575,000). Segment statement of financial position at 31 December 2009 Life insurance 000 Intangible assets Investment in an associate Financial instruments Reinsurance assets Insurance receivables Other assets Total assets Insurance contract liabilities Investment contract liabilities Net asset value attributable to unit-holders Other liabilities Total liabilities 1,315 69,009 22,153 10,254 19,581 122,312 78,686 11,010 30,572 120,268 Investment Adjustments Non-life management and insurance services eliminations 000 000 000 1,023 1,991 39,212 12,211 8,251 56 62,744 47,574 1,436 49,010 1,030 1,439 347 1,409 27,541 31,766 548 367 4,217 5,132 4,159 4,159 20,682 20,682
Total 000 3,368 1,991 109,660 34,711 19,914 51,337 220,981 126,260 11,558 367 56,907 195,092
IFRS 8.24(a)
IFRS 8.23
IFRS 8.23
Segment assets do not include current tax (2,812,000) or properties occupied by group head office (1,347,000). Segment liabilities do not include deferred tax (1,848,000), bank loans (18,284,000) or certain trade payables (550,000).
57
Commentary
Disclosure of operating segment assets and liabilities is only required where such a measure is provided to the chief operating decision maker. The Group provides information to the chief operating decision maker about operating assets and liabilities. The remaining operations (e.g., treasury) which are amongst others reflected in adjustments and eliminations, do not constitute an individual operating segment. The Groups internal reporting is set up to report in accordance with IFRS. The segment disclosures could be significantly more extensive if internal reports had been prepared on a basis other than IFRS. In this case, reconciliation between the internally reported items and the externally communicated items needs to be prepared.
Euroland 000 Total revenue from external customers Non-current assets Year end 31 December 2009
UK 000
USA 000
Total 000
30,325 9,101
24,053 4,405
10,526 51,952
5,419 65
70,323 65,523
UK 000
USA 000
Total 000
29,014 10,056
23,041 4,954
8,503 259
4,864 86
65,422 15,355
The revenue information is based on the location of the customer. No revenue transactions with a single customer amount to more than 0.25% of total revenue. Non-current assets for this purpose consist of intangible assets, the investment in associate, property and equipment and investment properties.
IFRS 8.34
5. Net premiums
(a) Gross premiums on insurance contracts and investment contracts with DPF Notes Life insurance Non-life insurance Investment contracts with DPF Change in unearned premiums provision Total gross premiums 33(a) 33(b)(2) 34(a) 2010 000 47,845 24,511 2,400 (610) 74,146 2009 000 46,943 24,626 2,497 (615) 73,451
IFRS 4.37(b)
(b) Premiums ceded to reinsurers on insurance contracts and investment contracts with DPF 2010 Notes 000 Life insurance Non-life insurance Investment contracts with DPF Change in unearned premiums provision Total premiums ceded to reinsurers Total net premiums
58 Good Insurance (International) Limited
2010 000 Policyholder administration and investment management services Surrender charges and other contract fees Reinsurance commission income Total fees and commission income 2,573 2,212 579 5,364
7. Investment income
2010 000 225 2009 000 214
IAS 40.75(f)(i) IFRS 7.20(a)(i)
Note Rental income from investment properties Financial assets at fair value through profit or loss (held for trading purposes) Interest income Dividend income Financial assets at fair value through profit or loss (designated upon initial recognition) Interest income Dividend income Held to maturity financial assets interest income Loans to related parties interest income Available-for-sale financial assets Interest income Dividend income Loans and receivables interest income Interest income accrued on impaired loans and receivables Cash and cash equivalents interest income Total investment income 24
516 507
487 473
8. Realised gains
2010 000 Property and equipment Realised gains Available-for-sale financial assets Realised gains Equity securities Debt securities Realised losses Equity securities Debt securities Total realised gains for available-for-sale financial assets Total realised gains 167 52
IFRS 7.20(a)(ii)
2009 000
21 29 (7) (2) 41 93
59
Notes Fair value gains on investment properties Fair value losses on derivative financial instruments held for trading Fair value gains on hedged items attributable to the hedged risk in fair value hedges Fair value losses on hedging instruments in fair value hedges Total fair value gains and losses on fair value hedges Fair value gains on financial assets at fair value through profit or loss (held for trading purposes) Fair value gains on financial assets at fair value through profit or loss (designated upon initial recognition) Total fair value gains on financial assets at fair value through profit or loss other than derivatives Total fair value gains and losses 24
(67)
(41)
IFRS 7.20(a)(i)
25 25
34 (28) 6
13 (22) (9)
IFRS 7.24(a)(i)
IFRS 4.37(a)
60
Notes Amortisation of intangible assets Acquisition related transaction costs Impairment loss on reinsurance assets Impairment loss on loans and receivables Depreciation on property and equipment Amounts written off on loans and receivables Investment property related expenses Fees and commission expenses Deferred expenses Amortisation of deferred expenses Auditors remuneration Employee benefits expense Net foreign exchange adjustments Other expenses Total other operating and administrative expenses 21 3 27 26(e) 23 26(b) 24 30 30 13
IFRS 7.20(e)
Notes Wages and salaries Social security costs Defined benefit pension costs Share-based payments expense Total employee benefits expense
36 19 12
61
2009 000
IAS 12.79
IAS 12.79
(i) The Group, as a proxy for policyholders in Euroland and the United Kingdom, is required to record taxes on investment income and gains each year. There are no income tax consequences attaching to the payment of dividends by the company to its shareholders.
62 Good Insurance (International) Limited
IAS 1.137(a)
289
1,619
IAS 33.70(b)
There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements.
63
Before tax amount 000 Exchange differences on translating foreign operations Net movement on cash flow hedges Available-for-sale financial assets Total
20 11 (1,855) (1,824)
7 (989) (982)
2010 000 Exchange differences on translating of foreign operations Cash flow hedges: Gains (losses) arising during the year Available-for-sale financial assets: Gains arising during the year Less: Reclassification adjustments for gains included in the income statement Income tax relating to components of other comprehensive income Other comprehensive income for the year, net of tax (67) (36)
IAS 1.82(g)
Notes Expense arising from equity-settled share-based payment transactions Expense arising from cash-settled share-based payment transactions Total expense arising from share-based payment transactions 13
14 4 18
10 4 14
IFRS 2.51(a)
The share-based payment plans are described below. There have been no cancellations or modifications to any of the plans during 2010 or 2009. Senior executive plan Share options are granted to senior executives with more than 12 months service. The exercise price of the options is equal to the market price of the shares on the date of grant. The options vest if and when the Groups earnings per share amount increases by 12%. If this increase is not met within three years from the date of grant the options lapse. The contractual life of each option granted is 6 years. There are no cash settlement alternatives. The fair value of the options is estimated at the grant date using a binomial pricing model, taking into account the terms and conditions upon which the share options were granted. The Group does not have a past practice of cash settlement for these share options.
64 Good Insurance (International) Limited
IFRS 2.46 IFRS 2.45(a)
IFRS 2.46
IFRS 2.45(a)(iii)
IFRS 2.46
IFRS 2.51(b)
IFRS 2.45(b)
No. 2009
(1)303,000
IFRS 2.45(c)
218,000
IFRS 2.45(d)
Included within these balances are options over 27,000 shares that have not been recognised in accordance with IFRS 2 as the options were granted on or before 7 November 2002. These options have not been subsequently modified and therefore do not need to be accounted for in accordance with IFRS 2. The number of shares outstanding was as follows:
X X X
IFRS 2.56
1 January 2009: 277,000 31 December 2009 and 1 January 2010: 267,000 31 December 2010: 252,000
IFRS 2.45(c)
(2) (3)
The weighted average share price at the date of exercise for the options exercised is 28.05. The weighted average share price at the date of exercise for the options exercised is 28.43.
The weighted average remaining contractual life for the share options outstanding as at 31 December 2010 is 2.60 years (2009: 2.30 years). The weighted average fair value of options granted during the year was 6.40 (2009: 5.95). The range of exercise prices for options outstanding at the end of the year was 26.50 to 31.00 (2009: 26.50 to 31.25).
IFRS 2.45(d)
65
The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may not necessarily be the actual outcome. No other features of options grants were incorporated in the measurement of fair value.
20. Goodwill
2010 000 3,799 6,521 10,320 (875) (875) 2009 000 3,799 3,799 (875) (875)
Notes Cost At 1 January Cost acquisition of subsidiaries At 31 December Accumulated impairment At 1 January Impairment loss At 31 December Carrying amount At 31 December 12
9,445
2,924
IAS 36.134
Goodwill has been allocated to three individual cash-generating units which are equivalent to the three operating segments of the Group; life insurance, non-life insurance (which comprises general insurance and healthcare); and investment management services. The carrying amount of goodwill allocated to each of the cash-generating units is shown below: Investment management services 000 586 586
IAS 36.134(a)
Life insurance 000 2010 2009 Life insurance unit 7,836 1,315
The recoverable amount for the life insurance business cash generating unit has been determined based on a value in use calculation. The calculation is based on the embedded value of the business together with the present value of expected profits from future new business over a five year period. The value in use result was significantly greater than its carrying value, including goodwill. A reasonably possible change in a key assumption will not cause the carrying value of the life business to materially exceed its recoverable amount.
66
Embedded value represents the shareholder interest in the life business and is based on projected cash flows of the business including expected investment returns. Risk adjusted discount rates used for calculation of embedded value are calculated using a risk margin of 3% based on the operating segments weighted average cost of capital. Future regular bonuses on contracts with DPF are projected in a manner consistent with current bonus rates and expected future returns on assets deemed to back the policies. Economic assumptions are based on market yields on risk-free fixed interest rates at the end of each reporting year. New business contribution represents the present value of projected future distributable profit generated from business written in a period. This is initially based on the most recent five year business plans approved by senior management. Growth rate represents the rate used to extrapolate new business contributions beyond the business plan period, and is based on managements estimate of future growth of 5% which is in line with the average growth rate of life insurance industry; and A pre-tax, Group specific risk adjusted discount rate of 12.5% (2009: 12.4%) is used to discount expected profits from future new business.
IAS 36.134(d)(ii)
IAS 36.134(d)(iv)
IAS 36.134(d)(v)
Non-life insurance unit and investment management services unit The recoverable amount of the non-life and investment management services businesses has been determined based on a value-in-use calculation using cash flow projections based on financial budgets approved by senior management covering a five year period. A pre-tax, Group -specific risk adjusted discount rate of 12.5% (2009: 12.4%) is used. The projected cash flows beyond the five years excluding expenses have been extrapolated using a steady average growth rate of 3.5% (2009: 3.3%) not exceeding the long-term average growth rate for the market in which the units operate. The projected cash flows are determined by budgeted margins based on past performances and management expectations for market developments. The key assumptions used for the value-in-use impairment calculation are:
X
IAS 36.134(d)
Investment market conditions Investment market conditions are based on market research and published statistics. Management plans assume modest investment growth of 4% which is lower than the anticipated market growth predicted. Policy lapses The Group has retained records of policy lapses since its inception and is therefore able to predict trends over the coming years. Management plans assume no change from recent experiences. Premiums and margins Premium income is based on average values achieved in the three years preceding the start of the budget period. A factor of 2% per annum was applied for non-life insurance and 2.5% for investment management services income. Gross margins are based on average percentages for the last three years while taking into account anticipated efficiency improvements, known expected expenditures and inflation. A factor of 2% per annum was applied for non-life insurance and 2% for investment management services income. Expenses Estimates are obtained from published indices of inflation and market research. The financial budget plans assume that expenses will broadly increase in line with inflation.
IAS 36.134(d)(i)-(v)
Sensitivity to changes in assumptions With regard to the assessment of value-in-use for the life and non-life insurance cash-generating unit, management does not believe a reasonably possible change in any of the above key assumptions would cause the carrying value of the units to exceed their recoverable amounts. For the investment management services cash-generating unit, a reasonably possible change in the investment market conditions assumption will cause the carrying amount to exceed the recoverable amount. The actual recoverable amount exceeds its carrying amount by 245,000 (2009: 211,000). Management recognised the fact that current investment market conditions reflect stable and profitable margins. Unfavourable conditions could materially affect the growth margins of these markets. A reduction of 1% in the investment growth rate would give a value-in-use equal to the carrying amount of the investment management services cashgenerating unit.
IAS 36.134(f)
67
Notes Cost At 1 January 2009 Cost capitalised At 31 December 2009 Cost capitalised Cost acquisition of subsidiaries Foreign exchange adjustment At 31 December 2010 Accumulated amortisation and impairment At 1 January 2009 Amortisation Impairment loss Foreign exchange adjustment At 31 December 2009 Amortisation Impairment loss Foreign exchange adjustment At 31 December 2010 Carrying amount At 31 December 2009 At 31 December 2010 Acquisition in 2010 12 12
Total 000
IAS 38.118(c)
IFRS 4.37(e)
IFRS 4.37(e)
IAS 38.118(c)
380 380
IAS 38.118(c)
313 25,257
131 9,139
4,742
444 39,138
PVIF, future servicing rights and other intangible assets include acquisitions as a result of the business combination of Good American Life Co (Note 3). The PVIF is amortised on an average of 30 years based on expected future premiums for these contracts. Future servicing rights are amortised over a period of 15 years based on fees from the acquired in-force policies, and other intangibles is amortised over nine years. Other Intangible assets of 5,122,000 are represented by Good American Life Cos distribution channels and have been valued by an independent third-party, using estimated post-tax cash flows and discount rates. The amortisation profile is in line with the Groups accounting policy (Note 2.5 (b)). As at 31 December 2009, these assets were tested for impairment, and management have determined no impairment is required in respect of these intangibles.
IAS 28.26
68
Notes Cost At 1 January 2009 Additions Disposals At 31 December 2009 Additions Acquisition of subsidiaries Disposals At 31 December 2010 Accumulated depreciation At 1 January 2009 Depreciation Disposals At 31 December 2009 Depreciation Disposals At 31 December 2010 Carrying amount At 31 December 2009 At 31 December 2010
IAS 16.73(d)
IAS 16.73(d)
12
12
IAS 16.73(d)
2,315 1,396
1,435 2,670
3,750 4,066
IAS 23.26
Property additions include 50,000 (2009: 23,000) in respect of capitalised borrowing costs which were capitalised at a rate of 7%. Property with a carrying amount of 904,123 (2009: 1,448,100) is subject to a first charge to secure the bank overdraft, see Note 37.
Good Insurance (International) Limited
69
Investment properties are stated at fair value, which has been determined based on valuations performed by Chartered Surveyors & Co. as at 31 December 2010 and 31 December 2009. Chartered Surveyors & Co. is an industry specialist in valuing these types of investment properties. The fair value is supported by market evidence and represents the amount at which the assets could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arms length transaction at the date of valuation, in accordance with standards issued by the International Valuation Standards Committee. Valuations are performed on an annual basis and the fair value gains and losses are recorded within the income statement. The Group enters into operating leases for all of its investment properties. The rental income arising during the year amounted to 225,000 (2009: 214,000), which is included in investment income see Note 7. Direct operating expenses (included within operating and administrative expenses) arising in respect of such properties during the year were 54,000 (2009: 46,000) see Note 12. Future lease receivables are disclosed in Note 47(b). The following main inputs have been used: 2010 % Yields (%) Inflation rate (%) Long term vacancy rate (%) Long growth in real rental rates ( %) 6-7% 3.5% 9% 3% 2009 % 5-6% 3% 5% 4%
IAS 40.75(f)
IAS 40.75(d)
Commentary
The Group has elected to value investment properties at fair value in accordance with IAS 40. IAS 40 permits property, plant and equipment and investment properties to be carried at historic cost less provision for depreciation and impairment. If the Group accounted for investment properties at cost, information about the cost basis and depreciation rates (similar to property, plant and equipment) would be required in addition to the disclosures about the fair value, including disclosures about the methods and significant assumptions used to determine fair value.
70
135 52 187
Derivatives held as fair value hedges: Interest rate swaps Forward foreign exchange contracts Foreign exchange traded futures
Derivatives often involve at their inception only a mutual exchange of promises with little or no transfer of consideration. However, these instruments frequently involve a high degree of leverage and are very volatile. A relatively small movement in the value of the asset, rate or index underlying a derivative contract may have a significant impact on the profit or loss of the Group. Over-the-counter derivatives may expose the Group to the risks associated with the absence of an exchange market on which to close out an open position. The Groups exposure under derivative contracts is closely monitored as part of the overall management of the Groups market risk (see also Note 45). As of 31 December 2010, the Group had positions in the following types of derivatives: Forward and futures Forwards and futures contracts are contractual agreements to buy or sell a specified financial instrument at a specific price and date in the future. Forwards are customised contracts transacted in the over-the-counter market. Futures contracts are transacted in standardised amounts on regulated exchanges and are subject to daily cash margin requirements. The main differences in the risk associated with forward and futures contracts are credit risk and liquidity risk. The Group has credit exposure to the counterparties of forward contracts. The credit risk related to future contracts is considered minimal because the cash margin requirements of the exchange help ensure that these contracts are always honoured. Forward contracts are settled gross and are, therefore, considered to bear a higher liquidity risk than the futures contracts which are settled on a net basis. Both types of contracts result in market risk exposure. Interest rate swaps Swaps are contractual agreements between two parties to exchange movements in interest or foreign currency rates. Typically, for an interest rate swap, a floating rate interest stream will be exchanged for a fixed rate or vice versa. The payment flows are usually netted against each other, with the difference being paid by one party to the other. Currency swaps In a currency swap, the Group pays a specified amount in one currency and receives a specified amount in another currency. Currency swaps are mostly grosssettled.
IFRS 7.B11F(g)
71
IFRS 7.22(b)
72
Within one year Within 1 3 years Within 3 8 years There were no cash flow hedges reclassified to the income statement in 2010 or 2009. There was no cash flow hedge ineffectiveness during 2010 or 2009.
26. Financial instruments other than derivative financial instruments and fair values of financial instruments
The Groups financial instruments other than derivative financial instruments are summarised by categories as follows: 2010 000 Held to maturity financial assets Loans and receivables Available-for-sale financial assets Financial assets at fair value through profit or loss Total financial instruments other than derivative financial instruments 2,104 7,264 109,677 35,249 154,294 2009 000 1,677 6,137 79,417 21,189 108,420
IFRS 7.8(b) IFRS 7.8(c) IFRS 7.8(d) IFRS 7.8(a)
The following table compares the fair values of the financial instruments to their carrying values: 2010 Carrying value 000 Held to maturity financial assets Loans and receivables Available-for-sale financial assets Financial assets at fair value through profit or loss Total financial instruments other than derivative financial instruments 2,104 7,264 109,677 35,249 154,294 2009 Carrying value 000 1,677 6,137 79,417 21,189 108,420
Commentary
IFRS 7 requires disclosure of certain information per class of financial instruments as defined in IAS 39. Category disclosures are made for main asset lines on the face of the statement of financial position and class disclosures in the notes have been based on the characteristics of the financial assets.
73
IFRS 7.6
Amortised cost Debt securities Total held to maturity financial assets at amortised cost (b) Loans and receivables Notes Amortised cost Loans to related parties Receivables from related parties Amounts written off in the year Other loans (net of impairment allowance of 526,000 (2009: 483,000), see Note 45) Total loans and receivables at amortised cost Fair value Loans to related parties Receivables from related parties Other loans Total loans and receivables at fair value The related party receivables are current and carrying value approximates fair value. 48(b) 48(b) 12
2,104 2,104
IFRS 7.6
The related party loans are at a variable interest rate and carrying value approximates fair value. The fair values of the other loans have been estimated by comparing current market interest rates for similar loans to the rates offered when the loans were first recognised together with appropriate market credit adjustments. (c) Available-for-sale financial assets 2010 000 Equity securities Debt securities Total available-for-sale financial assets at fair value 71,070 38,607 109,677 2009 000 55,466 23,951 79,417
74
IFRS 7.6 IFRS 7.6 IFRS 7.6 IFRS 7.6 IFRS 7.25
The table below indicates the fair value of financial assets at fair value through profit or loss, split between those classified as held for trading and those designated as such upon initial recognition. 2010 000 Held for trading purposes Designated upon initial recognition Total financial assets at fair value through profit or loss 8,483 26,766 35,249 2009 000 8,904 12,285 21,189
IFRS 7.8(a) (ii) IFRS 7.8(a) (i)
Commentary
The fair value hierarchy of investment contract liabilities with DPF should also be disclosed where these are measured at fair value. Good Insurance does not measure its investment contract liabilities with DPF at fair value as disclosed in Note 34(a).
(e) Carrying values of financial instruments other than derivative financial instruments Fair value through Held to Loans and Availableprofit or loss maturity receivables for-sale Notes 000 000 000 000 At 1 January 2009 Purchases Maturities Disposals Fair value gains recorded in the income statement Fair value gains recorded in other comprehensive income Movement in impairment allowance Amortisation adjustment Amounts written off Foreign exchange adjustments At 31 December 2009 Purchases Acquisition of subsidiaries Maturities Disposals Fair value gains recorded in the income statement Fair value gains recorded in other comprehensive income Movement in impairment allowance Amortisation adjustment Amounts written off Foreign exchange adjustments At 31 December 2010 1,047 531 (85) 9 18 184 12 1,677 333 3 (100) 9 18 194 12 2,104 (1,304) (43) (100) 7,264 5,160 2,314 (1,245) (22) (70) 6,137 2,574 76,784 5,000 (65) (6,523) 3,338 848 35 79,417 8,000 25,100 (87) (9,844) 6,230 821 40 109,677 19,244 4,000 (3,000) 945 21,189 5,000 15,008 (7,000) 1,052 35,249
Total 000 102,235 11,845 (1,395) (9,523) 945 3,338 (22) 1,032 (70) 35 108,420 15,907 40,108 (1,491) (16,844) 1,052 6,230 (43) 1,015 (100) 40 154,294
IFRS 7.20(a) IFRS 7.20(a)
IFRS 7.20(b)
IAS 21.28
IFRS 7.20(b)
IAS 21.28
75
IFRS 7.29(a)
IFRS 7.27A
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data
IFRS 7.27A
and
X
Financial assets and liabilities measured using a valuation technique based on assumptions that are supported by prices from observable current market transactions are assets and liabilities for which pricing is obtained via pricing services, but where prices have not been determined in an active market, financial assets with fair values based on broker quotes, investments in private equity funds with fair values obtained via fund managers and assets that are valued using the Groups own models whereby the majority of assumptions are market observable. Non market observable inputs means that fair values are determined in whole or in part using a valuation technique (model) based on assumptions that are neither supported by prices from observable current market transactions in the same instrument nor are they based on available market data. The main asset classes in this category are unlisted equity investments and debt instruments. Valuation techniques are used to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. However, the fair value measurement objective remains the same, that is, an exit price from the perspective of the Group. Therefore, unobservable inputs reflect the Groups own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). These inputs are developed based on the best information available, which might include the Groups own data. About 21% of the total financial assets recorded at fair value, are based on estimates and recorded as Level 3 investments. Where estimates are used, these are based on a combination of independent third-party evidence and internally developed models, calibrated to market observable data where possible. While such valuations are sensitive to estimates, it is believed that changing one or more of the assumptions to reasonably possible alternative assumptions would not change the fair value significantly.
IFRS 7.27A
76
Total fair 31 December 2010 Notes Financial assets Derivative financial instruments: Interest rate swaps Exchange traded equity options Forward foreign exchange contracts Foreign exchange traded futures Currency swaps 25 Financial assets held for trading: Equity securities Debt securities Mutual funds Deposits with credit institutions 26(d) Financial assets designated at fair value through profit or loss: Equity securities Debt securities Mutual funds Deposits with credit institutions 26(d) Available-for-sale financial assets: Equity securities Debt securities 26(c) Total financial assets Financial liabilities Investment contract liabilities: Investment contract liabilities without DPF Net asset value attributable to unit-holders Derivative financial instruments: Interest rate swaps Exchange traded equity options Forward foreign exchange contracts Foreign exchange traded futures Currency swaps 25 Total financial liabilities 45 298 343 3,493 300 105 113 383 247 1,148 5,021 291 291 1,642 591 150 113 383 545 1,782 10,156 34 35 3,000 150 3,653 220 1,201 150 7,854 520 40,022 22,779 62,801 79,661 14,992 6,515 21,507 37,840 16,056 9,313 25,369 29,607 71,070 38,607 109,677 147,108 5,744 3,045 2,611 125 11,525 5,156 3,833 2,500 11,489 1,700 688 1,364 3,752 12,600 7,566 6,475 125 26,766 1,044 1,986 948 864 4,842 1,851 1,250 301 3,402 69 164 6 239 2,964 3,400 1,255 864 8,483 67 24 59 343 493 377 223 114 204 524 1,442 230 17 247 607 290 155 263 867 2,182 Level 1 000 Level 2 000 Level 3 000 value 000
77
31 December 2009 Notes Financial assets Derivative financial instruments: Interest rate swaps Exchange traded equity options Forward foreign exchange contracts Foreign exchange traded futures Currency swaps 25 Financial assets held for trading: Equity securities Debt securities Mutual funds Deposits with credit institutions 26(d) Financial assets designated at fair value through profit or loss: Equity securities Debt securities Mutual funds Deposits with credit institutions 26(d) Available-for-sale financial assets: Equity securities Debt securities 26(c) Total financial assets
Level 1 000
Level 2 000
Level 3 000
10 23 45 249 327
226 23 249
Financial liabilities Investment contract liabilities: Investment contract liabilities without DPF 34 2,789 4,011 477 7,277
35
92
184
92
367
Derivative financial instruments: Interest rate swaps Exchange traded equity options Forward foreign exchange contracts Foreign exchange traded futures Currency swaps 25 Total financial liabilities 10 60 70 2,951 677 12 63 321 190 1,263 5,458 425 425 994 1,102 22 63 321 250 1,758 9,402
78
Structured bond type products held by the life businesses in Good American to 9.3million (2009: 6.7million), for which there is no active market. The Group values the securities using valuation models which use discounted cash flow analysis which incorporates either only observable data or both observable and non-observable data. Observable inputs include assumptions regarding current rates of interest and real estate prices; unobservable inputs include assumptions regarding expected future default rates, prepayment rates and market liquidity discounts. Most of these bonds have been classified as Level 3 because either, (i) the third party models included a significant unobservable liquidity adjustment or (ii) differences between the valuation provided by the counterparty and broker quotes and the validation model were sufficiently significant to result in a Level 3 classification. At 31 December 2010, the counterparty and broker quotes used to value these products were less than the modelled valuations. Private equity investment funds held by Euroland Life business amounting to 17.7 million (2009: 10.2 million). These assets are valued using models which sometimes only incorporate data observable in the market and at other times use both observable and non-observable data. The non-observable inputs to the models include assumptions regarding the future financial performance of the investee, its risk profile, and economic assumptions regarding the industry and geographical jurisdiction in which the investee operates.
Other Level 3 investments amount to 2.6 million (2009: 1.5 million) and relate to a diverse range of different types of securities held by a number of businesses throughout the Group. No day 1 profits were unrecognised because of the use of valuation techniques for which not all the inputs are observable in the market.
IFRS 7.28
Commentary
Paragraph 27A of IFRS 7 requires an entity to provide a quantitative analysis of fair values based on a three-level hierarchy in tabular format. This information must be given by class of financial instrument, which is a level lower than categories such as held for trading or available for sale. The level within which the fair value measurement is categorised must be based on the lowest level of input to the instruments valuation that is significant to the fair value measurement in its entirety. For instance, if the credit valuation adjustment made to a derivative value is based on non-observable inputs and the effect of this is significant to the instruments value, then the whole instrument is to be shown in Level 3. The same principle also applies to unit-linked liabilities. Therefore, it is possible to have all three levels of unit-linked liabilities depending on the characteristics of the underlying assets backing liabilities. An entity that issues investment contacts without DPF such as unit-linked investment funds and fair values these contracts under IAS 39 principles will be required to determine the fair value hierarchy per the requirements of the new IFRS 7 amendment. The level of category will depend upon whether the investment funds are quoted in an active market. An investment fund is classified in Level 1 if it is quoted in an active market and measured at the unadjusted quoted price at the reporting date and Level 2 if it is measured using inputs that are directly observable at the reporting date. An investor classifies an investment in a fund in Level 3 if the investment is measured using unobservable inputs at the reporting date (e.g., a significant liquidity discount is applied to the directly observable inputs because of restrictions on redemptions such as lock-up periods, redemption gates).
79
At 1 January 2010 000 Financial assets Derivative financial instruments: Interest rate swaps Forward foreign exchange contracts Financial assets held for trading: Equity securities Debt securities Mutual funds Financial assets designated at fair value through profit or loss: Equities Debt securities Mutual funds Available-for-sale financial assets: Debt securities Equities
Purchases 000
Sales 000
Total unrealised gains or losses for the period included in profit or loss for assets held at 31 December 2010 000
226 23 249
33 (12) 21
156 24 180
96 (20) (116)
11 11
230 17 247
13 13
137 54 36 227
228 17 16 261
69 164 6 239
100 25 5 130
100 34 45 179
(60) (60)
25 30 35 90
21 (46) (25)
678 678
(673) (673)
(1,231) (1,231)
30 25 55
Total Level 3 financial assets Financial liabilities Investment contract liabilities without DPF Net asset value attributable to unitholders Derivative financial instruments: Interest rate swaps Total Level 3 financial liabilities
18,378
402
156
4,071
(3,063)
(2,175)
11,099
29,607
288
477
45
89
(21)
611
1,201
45
92
35
34 34
25
(90)
88
150
20
425 994
(45) 35
114
(89) (200)
699
291 1,642
(30) 35
80
At 1 January 2009 000 Financial assets Derivative financial instruments: Interest rate swaps Forward foreign exchange contracts Financial assets heldfortrading: Equity securities Debt securities Mutual funds Financial assets designated at fair value through profit or loss: Equity securities Debt securities Mutual funds Availableforsale financial assets: Debt securities Equities 10,244 6,554 16,798 Total Level 3 financial assets Financial liabilities Investment contract liabilities without DPF Net asset value attributable to unit holders Derivative financial instruments: Interest rate swaps Total Level 3 financial liabilities
Purchases 000
Sales 000
Total unrealised gains or losses for the period included in profit or loss for assets held at 31 December 2009 000
342 3 345
23 (12) 11
78 32 110
(98) (98)
81 12 93
226 23 249
19 19
834 3 73 910
(903) (903)
43 7 38 88
180 3 1 184
4 (19)
2
(15)
19,006
(336)
127
5,044
(3,277)
(2,868)
670
18,378
(288)
398
79
(12)
477
70
11
10
(5)
92
79 15 (31) 63
566 1,034
(34) 56
13 31
(120) (137)
10
425 994
1 2
Included in Fair value gains and losses Included in Realised gains and losses
IFRS 7.2
81
Realised gains 000 Total gains or losses included in profit or loss for the period Total gains or losses included in profit and loss for the period for assets held at the end of the reporting period
Commentary
Total 000
Total 000
(25)
462
437
(15)
(265)
(280)
323
323
(225)
(225)
For fair value measurements resulting from the use of significant unobservable inputs into the valuation techniques, the IFRS 7 amendment requires a reconciliation from the beginning balances to the ending balances for those assets and liabilities that are measured at fair value in the statement of financial position. The reconciliation should include total gains and losses for the period split between those recognised in the profit or loss and those recognised in other comprehensive income, net purchases, sales and settlements and transfers in/out of Level 3. It also requires separate disclosure of the total amount of unrealised gains or losses included in the profit or loss for assets and liabilities held at the year end. The movement analysis should also provide a description of where the total gains or losses and unrealised gains or losses are presented in the consolidated statement of comprehensive income. As loans and receivables and heldtomaturity financial assets are not measured at fair value, the Level 3 movement analysis is not required for financial assets and liabilities that are not measured at fair value.
Transfers between Levels 1 and 2 The Group has also transferred certain financial assets from Level 1 to Level 2 which is shown in the following table as there is no longer an active market for the same product. The fair value for these products is calculated by applying other valuation techniques for which all significant inputs are based on observable market data. There have been no transfers from Level 2 to Level 1 in 2010 and 2009. Transfers from Level 1 to Level 2 2010 2009 000 000 Financial assets held for trading Equity securities Debt securities Mutual funds Financial investments available for sale Equity securities Debt securities 270 35 125 754 509 125 12 34 845 789
IFRS 7.27B(b)
IFRS 7.27B(b)
82
IFRS 7.27B(e)
000
Derivative financial instruments: Interest rate swaps Forward foreign exchange contracts Financial assets heldfortrading: Equity securities Debt securities Mutual funds Financial assets designated at fair value through profit or loss: Equity securities Debt securities Mutual funds Availableforsale financial assets: Debt securities Equities Financial liabilities Investment contract liabilities without DPF Net asset value attributable to unitholders Derivative financial instruments Interest rate swaps 291 1,201 150 16,056 9,313 25,369 1,700 688 1,364 3,752 69 164 6 239 230 17 247
000
5 6
000
226 23 249
000
3 2 2
4 3 1
12 7 4
8 2
23 17
18 8
7 4 8
477 92 425
3 1 1
83
For interest rate swaps and forward foreign exchange contracts, the Group has adjusted the correlation model input assumption. The adjustment made was to increase and decrease the assumption within a range of between 3% and 7%, depending on the individual characteristics of the derivative instrument. Management used judgment in determining this range, having regard to recent transactions and indicative market quotes. For debt securities, the Group adjusted the credit valuation model input assumption and counterparty credit risk rating. The adjustment made was to increase and decrease the assumption by 10% which is a range that is consistent with the Groups internal credit risk ratings for the counterparties. For equities, the Group adjusted the average price earnings ratio. The adjustment made was to increase and decrease the assumed price earnings ratio by two, which is considered by the Group to be within a range of reasonably possible alternatives based on price earnings ratios of companies with similar industry and risk profiles.
IFRS 4.37(b)
Notes Reinsurance of insurance contracts Reinsurance of investment contracts Total reinsurance assets 33 34
At 31 December 2010, the group conducted an impairment review of the reinsurance assets and recognised an impairment loss of 2,000 (2009: 16,000) in other operating and administrative expenses. The carrying amounts disclosed above is in respect of the reinsurance of investment contracts approximate fair value at the reporting date. During the year, the Group entered into reinsurance arrangements which resulted in profits on inception of 42,000 (2009: 38,000). This profit has been reflected in the income statement.
IFRS 7.25, 29
IFRS 4.37(b)(i)
28. Taxation
(a) Tax receivable 2010 000 At 1 January Amounts recorded in the income statement Payments made onaccount during the year At 31 December 2,812 (1,381) 1,564 2,995 2009 000 2,454 (1,086) 1,444 2,812
84
Losses carried forward Provisions and other temporary differences Impairment of assets Insurance related items Fair value adjustments on acquisition (Note 3) Pension scheme deficit Net unrealised gains on investment securities Deferred expenses Accelerated capital allowances Other Deferred tax expense/(income) (Note 14) Total deferred tax liability
IAS 12.81(g)(ii)
IAS 12.81(a)
A deferred tax asset is recognised for a tax loss carry forward only to the extent that realisation of the related tax benefit is probable. A deferred tax asset has not been recognised in respect of a tax loss carry forward of 415,000 (2009: 4,728,000) and accelerated capital allowances of 68,000 (2009: 57,000) relating to a branch in Africa, as there is insufficient certainty as to the availability of future profits arising from that tax jurisdiction. These amounts include tax losses of 222,000 (2009: 4,535,000) due to expire in 2011. In addition, the Group has an unrecognised deferred tax asset in respect of a capital loss of 178,000 (2009: 178,000) which can only be offset against future capital gains and has not been recognised in these financial statements. This tax loss has no expiry date. A deferred tax liability has not been recognised in respect of the investment in the associate.
IAS 12.81(e)
IAS 12.81(e)
85
Notes At 1 January 2009 Expenses deferred Amortisation At 31 December 2009 Expenses deferred Amortisation At 31 December 2010
12 12 12 12
Shortterm deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group. All deposits are subject to an average variable interest rate of 3.8% (2009: 4.3%). The carrying amounts disclosed above reasonably approximate fair value at the reporting date. The cash and cash equivalents position for cash flow purposes, net of the Group overdraft, as per Note 37, is 16,805,000 (2009: 20,876,000).
IFRS 4.37(b)
Net 000
Net 000
Notes
Life insurance contracts Nonlife insurance contracts Total insurance contract liabilities
86
33(a) 33(b)
IFRS 4.37(e)
Notes At 1 January 2010 Premiums received Liabilities paid for death, maturities, surrenders, benefits and claims Benefits and claims experience variation Fees deducted Credit of interest or change in unit prices Acquisitions of subsidiaries Adjustments due to changes in assumptions: Mortality/ morbidity Longevity Investment return Expenses Lapse and surrender rates Discount rate Foreign exchange adjustment At 31 December 2010
Net 000
53,506 32,175
78,686 47,845
(5,274) (3,668)
(11,203) (7,793)
(16,477) (11,461)
62,209 36,384
10(a)& 10(b)
(6,642)
(14,113)
(20,755)
1,660
3,528
5,188
(15,567)
(6,859) (850)
(14,014) (1,807)
(20,873) (2,657)
1,632 212
3,468 452
5,100 664
(15,773) (1,993)
134 3 22,509
286 19,509
420 42,018
(34)
(71)
(105)
315 42,018
87
Notes At 1 January 2009 Premiums received Liabilities paid for death, maturities, surrenders, benefits and claims Benefits and claims experience variation Fees deducted Credit of interest or change in unit prices Adjustments due to changes in assumptions: Mortality/ morbidity Longevity Investment return Expenses Lapse and surrender rates Discount rate Foreign exchange adjustment At 31 December 2009
Net 000
50,466 31,921
74,214 46,943
(4,962) (3,756)
(10,545) (7,980)
(15,507) (11,736)
58,707 35,207
10(a)
(6,922)
(14,708)
(21,630)
1,730
3,677
5,407
(16,223)
(6,386) (879)
(13,569) (1,867)
(19,955) (2,746)
1,644 220
3,495 467
5,139 687
(14,816) (2,059)
146
305
451
(36)
(77)
(113)
338
IFRS 4.37(d)
8 25,180
18 53,506
26 78,686
(2) (5,274)
(5) (11,203)
(7) (16,477)
19 62,209
Changes in some of the previously mentioned assumptions will largely be offset by corresponding changes in the assets backing the liabilities. For reinsurance assets, see Note 27.
88
Net 000
Net 000
Notes Provision for reported claims by policyholders Provision for claims IBNR Outstanding claims provision Provision for unearned premiums Provision for premium deficiency Total non life insurance contract liabilities
For reinsurance assets, see Note 27. (1) Outstanding claims provision
2010 Insurance contract liabilities 000 37,751 14,495 Reinsurance of liabilities 000 (9,437) (3,626) Insurance contract liabilities 000 35,175 15,094 2009 Reinsurance of liabilities 000 (8,791) (3,778)
IFRS 4.37(e)
Notes At 1 January Claims incurred in the current accident year Adjustment to claims incurred in prior accident years due to changes in assumptions: Average claim cost Average number of claims Average claim settlement period Other movements in claims incurred in prior accident years Claims paid during the year Foreign exchange adjustment At 31 December
IFRS 4.37(d)
89
Notes At 1 January Premiums written in the year Premiums earned during the year At 31 December
Notes At 1 January Incurred during the year Utilised during the year Foreign exchange adjustment At 31 December
(108)
Net 000
Net 000
Notes Investment contract liabilities with DPF Investment contract liabilities without DPF Total investment contract liabilities
34(a) 34(b)
90
Notes At 1 January Premiums received Liability assumed for benefits Fees deducted Credit of income Acquisitions of subsidiaries Adjustment due to changes in assumptions: Mortality/morbidity Longevity Investment return Expense Lapse and surrender rates Discount rate Foreign exchange adjustment At 31 December
IFRS 4.37(d)
Investment contract liabilities with a DPF above represent the guaranteed and discretionary benefits attributable to these policyholders. As permitted by IFRS 7, the Group has not disclosed fair values for investment contract liabilities with a DPF as fair values or fair value ranges for the DPF cannot be reliably estimated. There is no active market for these instruments, which will be settled with policyholders in the normal course of business.
IFRS 7.29(c)
IFRS 7.30
Commentary
Fair value disclosures for investment contract liabilities with DPF are not required if the fair value of that feature cannot be reliably estimated (IFRS 7.29(c)). This concession does not exist for investment contract liabilities without DPF.
(b) Investment contract liabilities without DPF Investment contract liabilities without DPF are stated at fair value. Investment contract liabilities without DPF are further analysed as follows:
2010 Investment contract liabilities 000 At 1 January Acquisition of subsidiaries Deposits Withdrawals Fees deducted Credit of interest Investments fair value adjustment Foreign exchange adjustment At 31 December 7,277 510 463 (380) (90) 42 26 6 7,854 Reinsurance of liabilities 000 (4,003) Insurance contract liabilities 000 7,169 2009 Reinsurance of liabilities 000 (3,943)
IFRS 7.25, 29
(255) 209 50 (25) (12) (3) (4,039)
525 (429) (95) 61 39 7 7,277
(289) 240 52 (36) (23) (4) (4,003)
236 (189) (43) 25 16 3 3,274
91
IAS 19.120A(g)
92
IAS 19.120A(j)
The plan assets include property occupied by Good Insurance (International) Limited with a fair value of 52,000 (2009: 48,000). The overall expected rate of return on assets is determined based on market expectations prevailing on that date, applicable to the period over which the obligation is to be settled. There has been a significant change in the expected rate of return on assets due to the improved stock market scenario. The principal actuarial assumptions used in determining the pension benefit obligation for the Groups plan are as follows: 2010 000 Future salary increases Future pension increases Inflation assumption Discount rate Expected rate of return on plan assets Post retirement mortality for pensioners at 65: Male Female 4.5 3.0 2.9 6.5 8.0 2009 000 4.0 2.8 2.8 6.4 7.5
IAS 19.120A(l)
IAS 19.120A(n)
20.0 23.0
20.0 23.0
93
Commentary
Although not specifically required by IAS 19, the discount rate assumption or other assumptions give rise to estimation uncertainty which can result in having a significant risk for a material adjustment. Paragraph 125 of IAS 1 requires adequate disclosure of the assumptions to help users understand the source of estimation uncertainty. The above disclosure about the sensitivity of the discount rate is one example of such disclosure.
Amounts for the current and previous four periods are as follows: 2010 000 Defined benefit obligation Plan assets Deficit Experience adjustments on plan liabilities Experience adjustments on plan assets 10,016 5,303 (4,713) (188) 91 2009 000 9,593 5,112 (4,481) (80) 85 2008 000 9,268 4,873 (4,395) (75) 80 2007 000 10,745 5,701 (5,044) 95 (104) 2006 000 10,413 5,528 (4,885) 89 (99)
IAS 19.120A(p)
37. Borrowings
2010 000 Group overdraft 8,000,000 Group loan 7,500,000 Group loan Total borrowings (a) Current borrowings 2010 000 Group overdraft 8,000,000 Group loan 7,500,000 Group loan Total current borrowings Expected recovery or settlement within 12 months from the reporting date. The Group overdraft is subject to an average variable interest rate of 5.8% (2009: 5.3%). The Group overdraft has an average current maturity of 35 days (2009: 30 days). The Group overdraft is secured by a charge over certain of the Groups assets. As at the reporting date, the aggregate unused Group overdraft facility amounted to 2,410,000 (2009: 2,630,000). The 8,000,000 Group loan is referenced to Euribor plus 2%, which resulted in an average interest rate of 5.9% for the year (2009: 5.4%). The loan is unsecured and is repayable in fixed annual instalments of 2,000,000 until 31 December 2012. The 7,500,000 fixed interest Group loan is unsecured and is repayable in fixed annual instalments of 1,500,000 through 31 December 2014 at an interest rate of 6.8%.
94 Good Insurance (International) Limited
IFRS 7.8(f)
All borrowings are stated at amortised cost. For shortterm borrowings and variable rate loans, it is assumed that the carrying value approximates fair value. The fair value of the fixed rate loan carried at amortised cost is estimated by comparing market interest rates when it was first recognised with current market rates offered for similar financial instruments together with an adjustment for market credit risk.
Deposits received from reinsurers 000 At 1 January 2009 Arising during the year Utilised Foreign exchange adjustment At 31 December 2009 Arising during the year Utilised Foreign exchange adjustment At 31 December 2010 1,804 207 (84) 5 1,932 211 (91) 6 2,058
The carrying amounts disclosed above approximate fair value at the reporting date. All amounts are payable within one year.
95
The carrying amounts disclosed above approximate fair value at the reporting date. All amounts are payable within one year.
2010 000 At 1 January Fees deferred Fees released to the income statement Foreign exchange adjustment Total deferred revenue The expected realisation of the deferred revenue is as follows: 2010 000 Current Noncurrent Total deferred revenue 28 4,337 4,365 4,334 38 (9) 2 4,365
96
10,000
10,000
IAS 1.79(a)(i) (iv)
Ordinary shares issued and fully paid At 1 January 2009 Issued on 1 July 2009 for cash on exercise of share options (Note 19) At 31 December 2009 Issued on 30 April 2010 in exchange for issued share capital of Good American Life Co (Note 3) Issued on 1 July 2009 for cash on exercise of share options (Note 19) At 31 December 2010 Additional paidin capital At 1 January 2009 Increase on 1 July 2009 for cash on exercise of share options Decrease due to transaction costs At 31 December 2009 Increase on 1 May 2010 because of issuance of share capital for the acquisition of Good American Life Co (Note 3) Increase on 1 July 2010 for cash on exercise of share options Decrease due to transaction costs At 31 December 2010
000 7,382 3 7,385 1,250 3 8,638 000 1,000 47 (2) 1,045 26,609 63 (302) 27,415
IAS 1.78(e)
All ordinary shares issued are fully paid. All ordinary shares are held by external, nonrelated parties and companies to the Group.
IAS 1.79(a)(ii)
IAS 32.35
IFRS 7.33(b)
97
IFRS 7.33(b)
IAS 1.135(a)
To maintain the required level of stability of the Group thereby providing a degree of security to policyholders To allocate capital efficiently and support the development of business by ensuring that returns on capital employed meet the requirements of its capital providers and of its shareholders To retain financial flexibility by maintaining strong liquidity and access to a range of capital markets To align the profile of assets and liabilities taking account of risks inherent in the business To maintain financial strength to support new business growth and to satisfy the requirements of the policyholders, regulators and stakeholders To maintain strong credit ratings and healthy capital ratios in order to support its business objectives and maximise shareholders value
IAS 1.135(a)
X X X
The operations of the Group are also subject to regulatory requirements within the jurisdictions in which it operates. Such regulations not only prescribe approval and monitoring of activities, but also impose certain restrictive provisions (e.g., capital adequacy) to minimise the risk of default and insolvency on the part of the insurance companies to meet unforeseen liabilities as these arise. The Group and regulated entities within it have met all of these requirements throughout the financial year. In reporting financial strength, capital and solvency are measured using the rules prescribed by the Euroland Financial Services Authority (EFSA). These regulatory capital tests are based upon required levels of solvency, capital and a series of prudent assumptions in respect of the type of business written. The Group's capital management policy for its insurance and noninsurance business is to hold sufficient capital to cover the statutory requirements based on the EFSA directives, including any additional amounts required by the regulator. Approach to capital management The Group seeks to optimise the structure and sources of capital to ensure that it consistently maximises returns to the shareholders and policyholders. The Groups approach to managing capital involves managing assets, liabilities and risks in a coordinated way, assessing shortfalls between reported and required capital levels (by each regulated entity) on a regular basis and taking appropriate actions to influence the capital position of the Group in the light of changes in economic conditions and risk characteristics. An important aspect of the Group's overall capital management process is the setting of target risk adjusted rates of return, which are aligned to performance objectives and ensure that the Group is focused on the creation of value for shareholders.
IAS 1.135(a)
IAS 1.135(d)
IAS 1.135(a)(iii)
98
IAS 1.135(d)
Commentary
Paragraph 135(e) of IAS 1 requires that if an entity has not complied with its externally imposed capital requirements, the consequence of such noncompliance must be disclosed.
Available capital resources at 31 December 2010 Investment Nonlife management insurance services 000 000
Life insurance 000 Total shareholders' funds per financial statements Adjustments onto a regulatory basis Available capital resources
Other 000
Total 000
Available capital resources at 31 December 2009 Life insurance 000 Total shareholders' funds per financial statements Adjustments onto a regulatory basis Available capital resources Investment Nonlife management insurance services 000 000
Other 000
Total 000
(16,523) (16,523)
Of the available life insurance capital resources, 8,206,000 (2009: 8,305,000) are restricted and may not be transferred to the other segments. The adjustments onto a regulatory basis represent assets inadmissible for regulatory reporting purposes. (c) Regulatory framework Regulators are primarily interested in protecting the rights of policyholders and monitor them closely to ensure that the Group is satisfactorily managing affairs for their benefit. At the same time, regulators are also interested in ensuring that the Group maintains an appropriate solvency position to meet unforeseen liabilities arising from economic shocks or natural disasters. The operations of the Group are subject to regulatory requirements within the jurisdictions in which it operates. Such regulations not only prescribe approval and monitoring of activities, but also impose certain restrictive provisions (e.g., capital adequacy) to minimise the risk of default and insolvency on the part of insurance companies to meet unforeseen liabilities as these arise.
Good Insurance (International) Limited
99
IFRS 7.33(b)
Integrated with the management of the financial risks associated with the Groups other financial assets and liabilities not directly associated with insurance and investment liabilities An integral part of the insurance risk management policy, to ensure in each period sufficient cash flow is available to meet liabilities arising from insurance and investment contracts.
Commentary
Paragraph B6 of IFRS 7 permits entities to disclose the information requested by paragraphs 31 to 42 of IFRS 7 on the nature and extent of risks arising from financial instruments either in the financial statements or incorporated by crossreference to some other statement, such as a management commentary, that is available to users of the financial statements on the same terms as the financial statements and at the same time. The Group has elected to disclose this information in the financial statements.
IFRS 4.39(a)
IFRS 4.39(a)
100
IFRS 4.38
IFRS 4.38
IFRS 4.38
IFRS 4.38
IFRS 4.38
IFRS 4.38
IFRS 4.39(a)
Mortality risk risk of loss arising due to policyholder death experience being different than expected Morbidity risk risk of loss arising due to policyholder health experience being different than expected Longevity risk risk of loss arising due to the annuitant living longer than expected Investment return risk risk of loss arising from actual returns being different than expected Expense risk risk of loss arising from expense experience being different than expected Policyholder decision risk risk of loss arising due to policyholder experiences (lapses and surrenders) being different than expected
IFRS 4.39(c)(ii)
These risks do not vary significantly in relation to the location of the risk insured by the Group, type of risk insured or by industry.
101
IFRS 4.39(a)
IFRS 4.39(a)
IFRS 4.39(a)
IFRS 4.39(a)
IFRS 4.39(c)(ii)
IFRS 4.39(c)(ii)
Insurance and investment contract liabilities with DPF 000 Whole life Term assurance Guaranteed annuity products Pure endowment pensions Mortgage endowment Total life insurance Unitised pensions Total investment contracts with DPF Total 14,459 12,721 10,252 9,864 2,282 49,578 7,366 7,366 56,944
Insurance contract liabilities without DPF 000 22,974 19,282 14,037 13,210 6,967 76,470 76,470
Insurance contract and investment contract liabilities with DPF 000 (1,531) (1,200) (1,031) (966) (854) (5,582) (2,382) (2,382) (7,964)
Insurance contract liabilities without DPF 000 (3,253) (2,550) (2,191) (2,052) (1,806) (11,852)
Net 000 32,649 28,253 21,067 20,056 6,589 108,614 4,984 4,984 113,598
(11,852)
102
Insurance and investment contract liabilities with DPF 000 Whole life Term assurance Guaranteed annuity products Pure endowment pensions Mortgage endowment Total life insurance Unitised pensions Total investment contracts with DPF Total 7,909 6,496 4,151 3,725 2,899 25,180 4,281 4,281 29,461
Insurance contract liabilities without DPF 000 16,807 13,803 8,820 7,917 6,159 53,506
Insurance contract and investment contract liabilities with DPF 000 (1,435) (1,144) (1,037) (931) (727) (5,274) (2,338) (2,338) (7,612)
Insurance contract liabilities without DPF 000 (3,048) (2,430) (2,205) (1,979) (1,541) (11,203)
Net 000 20,233 16,725 9,729 8,732 6,790 62,209 1,943 1,943 64,152
IFRS 4.39(c)(ii)
53,506
(11,203)
The geographical concentration of the groups life insurance liabilities and investment contract liabilities with DPF is shown below. The disclosure is based on the countries where the business is written. The analysis would not be materially different if based on the countries in which the counterparties are situated. 31 December 2010
Gross Total gross insurance liabilities and investment contract liabilities with DPF 000 44,572 25,110 56,366 126,048 1,628 1,741 3,997 7,366 133,414 Reinsurance Total reinsurance of insurance liabilities and investment contract liabilities with DPF 000 (7,819) (6,278) (3,337) (17,434) (895) (957) (530) (2,382) (19,816)
IFRS 4.39(c)(ii)
Insurance and investment contract liabilities with DPF 000 Euroland United Kingdom United States Total life insurance Euroland United Kingdom United States Total investment contracts with DPF Total 7,366 56,944 14,263 8,035 27,280 49,578 1,628 1,741 3,997
Insurance contract liabilities without DPF 000 30,309 17,075 29,086 76,470
Insurance contract and investment contract liabilities with DPF 000 (2,502) (2,009) (1,071) (5,582) (895) (957) (530) (2,382) (7,964)
Insurance contract liabilities without DPF 000 (5,317) (4,269) (2,266) (11,852)
Net 000 36,753 18,832 53,029 108,614 733 784 3,467 4,984 113,598
76,470
(11,852)
103
Insurance and investment contract liabilities with DPF 000 Euroland United Kingdom United States Total life insurance Euroland United Kingdom United States Total investment contracts with DPF Total 4,281 29,461 13,489 7,440 4,251 25,180 1,754 1,608 919
Insurance contract liabilities without DPF 000 28,663 15,809 9,034 53,506
Total gross insurance liabilities and investment contract liabilities 000 42,152 23,249 13,285 78,686 1,754 1,608 919 4,281 82,967
Insurance contract and investment contract liabilities with DPF 000 (2,350) (1,860) (1,064) (5,274) (964) (884) (490) (2,338) (7,612)
Insurance contract liabilities without DPF 000 (4,993) (3,953) (2,257) (11,203)
Net 000 34,809 17,436 9,964 62,209 790 724 429 1,943 64,152
IFRS 4.37(c)
53,506
(11,203)
Key assumptions Material judgment is required in determining the liabilities and in the choice of assumptions. Assumptions in use are based on past experience, current internal data, external market indices and benchmarks which reflect current observable market prices and other published information. Assumptions and prudent estimates are determined at the date of valuation and no credit is taken for possible beneficial effects of voluntary withdrawals. Assumptions are further evaluated on a continuous basis in order to ensure realistic and reasonable valuations. The key assumptions to which the estimation of liabilities is particularly sensitive are as follows:
X
IFRS 4.37(c)
Mortality and morbidity rates Assumptions are based on standard industry and national tables, according to the type of contract written and the territory in which the insured person resides. They reflect recent historical experience and are adjusted when appropriate to reflect the Groups own experiences. An appropriate, but not excessive, prudent allowance is made for expected future improvements. Assumptions are differentiated by sex, underwriting class and contract type. An increase in rates will lead to a larger number of claims (and claims could occur sooner than anticipated), which will increase the expenditure and reduce profits for the shareholders.
Longevity Assumptions are based on standard industry and national tables, adjusted when appropriate to reflect the Groups own risk experience. An appropriate but not excessive prudent allowance is made for expected future improvements. Assumptions are differentiated by sex, underwriting class and contract type. An increase in longevity rates will lead to an increase in the number of annuity payments made, which will increase the expenditure and reduce profits for the shareholders.
104
Investment return The weighted average rate of return is derived based on a model portfolio that is assumed to back liabilities, consistent with the longterm asset allocation strategy. These estimates are based on current market returns as well as expectations about future economic and financial developments. An increase in investment return would lead to a reduction in expenditure and an increase in profits for the shareholders.
Expenses Operating expenses assumptions reflect the projected costs of maintaining and servicing inforce policies and associated overhead expenses. The current level of expenses is taken as an appropriate expense base, adjusted for expected expense inflation if appropriate. An increase in the level of expenses would result in an increase in expenditure thereby reducing profits for the shareholders.
Lapse and surrender rates Lapses relate to the termination of policies due to nonpayment of premiums. Surrenders relate to the voluntary termination of policies by policyholders. Policy termination assumptions are determined using statistical measures based on the Groups experience and vary by product type, policy duration and sales trends. An increase in lapse rates early in the life of the policy would tend to reduce profits for shareholders, but later increases are broadly neutral in effect.
Discount rate Life insurance liabilities are determined as the sum of the discounted value of the expected benefits and future administration expenses directly related to the contract, less the discounted value of the expected theoretical premiums that would be required to meet these future cash outflows. Discount rates are based on current industry risk rates, adjusted for the Groups own risk exposure. A decrease in the discount rate will increase the value of the insurance liability and therefore reduce profits for the shareholders.
105
With fixed and guaranteed terms and with DPF contracts Life insurance
(1)80 (1)70
Pensions
3.5% 4%
3% 3.5%
3.5% 4%
3% 3.5%
4.5%
4%
4%
33.5%
4%
3.5%
4.5%
4%
(2)43
(2)40
Females
3.5% 4%
3% 3.5%
4.5%
4%
4.5%
4%
4%
3.5%
4.5%
4%
4.5%
4%
4% 4%
3.5% 3.5%
4.5% 4.5%
4% 4%
4.5% 4.5%
4% 4%
Industry mortality and morbidity experience tables for endowment assurance policies that were observed in Euroland and America between 1990 and 1994. Industry mortality and morbidity experience tables for term assurance policies that were observed in Euroland and America between 1990 and 1994. Industry mortality and morbidity experience tables for annuity policies that were observed in Euroland and America between 1990 and 1994.
Sensitivities The analysis which follows is performed for reasonably possible movements in key assumptions with all other assumptions held constant, showing the impact on gross and net liabilities, profit before tax and equity. The correlation of assumptions will have a significant effect in determining the ultimate claims liabilities, but to demonstrate the impact due to changes in assumptions, assumptions had to be changed on an individual basis. It should be noted that movements in these assumptions are nonlinear. Sensitivity information will also vary according to the current economic assumptions, mainly due to the impact of changes to both the intrinsic cost and time value of options and guarantees. When options and guarantees exist, they are the main reason for the asymmetry of sensitivities.
106
Mortality/morbidity Longevity Investment return Expenses Lapse and surrenders rate Discount rate 31 December 2009
Mortality/morbidity Longevity Investment return Expenses Lapse and surrenders rate Discount rate Investment contracts with DPF 31 December 2010
+ 10 % 10 % +1% + 10 % + 10 % +1%
Change in assumptions
Increase/ (decrease) on gross liabilities 000 457 356 (446) 335 290 (245) Increase/ (decrease) on gross liabilities 000 387 311 (365) 221 212 (167)
Increase/ (decrease) on net liabilities 000 206 160 (201) 151 131 (110) Increase/ (decrease) on net liabilities 000 174 140 (164) 99 95 (75)
Increase/ (decrease) on profit before tax 000 (51) (40) 50 (38) (33) 28 Increase/ (decrease) on profit before tax 000 (44) (35) 41 (25) (24) 19
Increase/ (decrease) on equity* 000 (39) (31) 38 (29) (25) 21 Increase/ (decrease) on equity* 000 (33) (27) 31 (19) (18) 14
Mortality/morbidity Longevity Investment return Expenses Lapse and surrenders rate Discount rate 31 December 2009
+ 10 % 10 % +1% + 10 % + 10 % +1%
Change in assumptions
Mortality/morbidity Longevity Investment return Expenses Lapse and surrenders rate Discount rate
+ 10 % 10 % +1% + 10 % + 10 % +1%
The method used and significant assumptions made for deriving sensitivity information did not change from the previous period.
Commentary
Paragraph 39(d)(ii) of IFRS 4 and paragraph 39A(a) of IFRS 4 permit the use of Embedded Value (EV) sensitivity disclosures instead of IFRS 7 sensitivity disclosures for insurance and market risk sensitivities. This disclosure option is only allowed if insurance and market risk sensitivities are managed on an EV basis. Another allowed alternative is to base sensitivity disclosures on Economic Capital measures. This is also only allowed if insurance and market risk sensitivities are actually managed on that basis. For illustrative purposes, EV sensitivity disclosures, based on observed best practice disclosures in the insurance industry, have been provided in Appendix 3.
Good Insurance (International) Limited 107
IFRS 4.39(a)
IFRS 4.39(c)(ii)
IFRS 4.39(a)
IFRS 4.39(a)
IFRS 4.39(a)
108
The geographical concentration of the Groups nonlife insurance contract liabilities is noted below. The disclosure is based on the countries where the business is written. The analysis would not be materially different if based on the countries in which the counterparties are situated. Nonlife insurance contracts 31 December 2010 Gross Reinsurance liabilities of liabilities 000 000 Euroland United Kingdom International Total Key assumptions The principal assumption underlying the liability estimates is that the Groups future claims development will follow a similar pattern to past claims development experience. This includes assumptions in respect of average claim costs, claim handling costs, claim inflation factors and claim numbers for each accident year. Additional qualitative judgments are used to assess the extent to which past trends may not apply in the future, for example: onceoff occurrence, changes in market factors such as public attitude to claiming, economic conditions, as well as internal factors such as portfolio mix, policy conditions and claims handling procedures. Judgment is further used to assess the extent to which external factors such as judicial decisions and government legislation affect the estimates. Other key circumstances affecting the reliability of assumptions include variation in interest rates, delays in settlement and changes in foreign currency rates. Sensitivities The nonlife insurance claim liabilities are sensitive to the key assumptions that follow. It has not been possible to quantify the sensitivity of certain assumptions such as legislative changes or uncertainty in the estimation process. The following analysis is performed for reasonably possible movements in key assumptions with all other assumptions held constant, showing the impact on gross and net liabilities, profit before tax and equity. The correlation of assumptions will have a significant effect in determining the ultimate claims liabilities, but to demonstrate the impact due to changes in assumptions, assumptions had to be changed on an individual basis. It should be noted that movements in these assumptions are nonlinear. 22,798 17,732 10,134 50,664 (5,700) (4,433) (2,533) (12,666) 31 December 2009 Gross Reinsurance liabilities of liabilities 000 000 21,408 16,651 9,515 47,574 (5,237) (4,329) (2,327) (11,893)
109
Average claim cost Average number of claims Average claim settlement period
Average claim cost Average number of claims Average claim settlement period
The method used for deriving sensitivity information and significant assumptions did not change from the previous period. Claims development table The following tables show the estimates of cumulative incurred claims, including both claims notified and IBNR for each successive accident year at each reporting date, together with cumulative payments to date. The cumulative claims estimates and cumulative payments are translated to euros at the rate of exchange that applied at the end of the accident year. The impact of exchange differences is shown at the bottom of the table. The Group has taken advantage of the transitional rules of IFRS 4 that permit only five years of information to be disclosed upon adoption of IFRS. The claims development information disclosed is being increased from five years to ten years over the period 20062010. As required by Euroland GAAP, in setting claims provisions the Group gives consideration to the probability and magnitude of future experience being more adverse than assumed and exercises a degree of caution in setting reserves where there is considerable uncertainty. In general, the uncertainty associated with the ultimate claims experience in an accident year is greatest when the accident year is at an early stage of development and the margin necessary to provide the necessary confidence in the provisions adequacy is relatively at its highest. As claims develop, and the ultimate cost of claims becomes more certain, the relative level of margin maintained should decrease. However, due to the uncertainty inherited in the estimation process, the actual overall claim provision may not always be in surplus. In 2010, there has been an overall deficit of 2,547,000 (2009: deficit of 2,246,000) due primarily to additional business interruption claims on the 2008 accident year (2009: motor liability claims arising from unfavourable court rulings on the 2007 accident years).
IFRS 4.44 IFRS 4.39(c)(iii)
110
2002 000 12,254 12,587 12,752 12,623 12,258 12,325 13,258 13,427 13,443
2003 000 12,235 12,436 12,517 12,634 12,587 13,584 13,598 13,612
Total 000
13,443
13,612
15,990
15,907
16,012
17,754
18,281
15,543
14,495
141,037
(9,235) (9,452)
(8,904) (9,211)
(6,939) (8,054)
(7,549) (9,949)
(6,851) (8,106)
(5,681)
(10,152) (10,434) (10,631) (11,072) (11,492) (12,099) (12,562) (13,442) (12,662) (13,995) (13,390)
(13,275)
(13,390) (13,995)
(12,597)
(11,792) (11,899)
(10,311)
(8,106)
(5,681) (101,046)
203
168
222
1,995
3,310
4,220
5,855
7,970
7,437
8,814
40,194
17
33(b)(1)
203
169
225
1,997
3,311
4,222
5,857
7,971
7,439
8,817
40,211
(1,189)
(1,377)
(670)
(1,829)
(45)
(1,094)
(3,188)
(1,050)
(9%)
(10%)
(4%)
(11%)
(6%)
(17%)
(7%)
111
10,835 (7,600) (7,633) (8,443) (8,657) (8,900) (10,403) (10,483) (10,619) (10,823) (10,823)
11,209 (3,398)
105,579
(9,410)
(9,930)
(10,630)
(9,901)
(8,867)
(7,472)
(5,083)
(3,398)
(75,514)
89
12
110
1105
2,150
2,020
4,662
5,448
6,747
7,811
30,154
(2)
33(b)(1)
87
13
111
1,105
2,151
2,020
4,663
5,449
6,748
7,811
30,158
(832)
(1,232)
(345)
(1,621)
(446)
(301)
(1,605)
(962)
(8%)
(13%)
(3%)
(13%)
(4%)
(2%)
(12%)
(8%)
Commentary
The Group has elected to present its claims development on an accident year basis as this is consistent with how the business is managed. IFRS 4 does not prescribe the format of the disclosure of claims development and the presentation of this information by underwriting year is also permissible. Additionally, IFRS 4 does not explain how entities should present exchange differences or business combinations in the claims development disclosure. The Group has elected to translate estimated claims and claims payments at the rate of exchange applicable at the end of each accident year. Alternatively, entities could translate claim estimates or payments at the rate of exchange applying at the reporting date or by some other method.
112
IFRS 7.33(a)
IFRS 7.33(b)
A Group credit risk policy which sets out the assessment and determination of what constitutes credit risk for the Group. Compliance with the policy is monitored and exposures and breaches are reported to the Group risk committee. The policy is regularly reviewed for pertinence and for changes in the risk environment. Net exposure limits are set for each counterparty or group of counterparties, geographical and industry segment (i.e., limits are set for investments and cash deposits, foreign exchange trade exposures and minimum credit ratings for investments that may be held). The Group further restricts its credit risk exposure by entering into master netting arrangements with counterparties with which it enters into significant volumes of transactions. However, such arrangements do not generally result in an offset of balance sheet assets and liabilities, as transactions are usually settled on a gross basis. However, the credit risk associated with such balances is reduced in the event of a default, when such balances are settled on a net basis. At 31 December 2010, the Group had the right to set off financial liabilities amounting to 10,789,000 (2009: 8,563,000) against financial assets with a fair value of 11,265,000 (2009: 10,582,000) under such arrangements. Guidelines determine when to obtain collateral and guarantees (i.e., certain derivative transactions are covered by collateral and derivatives are only taken out with counterparties with a suitable credit rating). The Group maintains strict control limits by amount and terms on net open derivative positions. The amounts subject to credit risk are limited to the fair value of in the money financial assets against which the Group either obtains collateral from counterparties or requires margin deposits. Collateral may be sold or repledged by the Group and is repayable if the contract terminates or the contracts fair value falls. Reinsurance is placed with counterparties that have a good credit rating and concentration of risk is avoided by following policy guidelines in respect of counterparties limits that are set each year by the board of directors and are subject to regular reviews. At each reporting date, management performs an assessment of creditworthiness of reinsurers and updates the reinsurance purchase strategy, ascertaining suitable allowance for impairment. The Group sets the maximum amounts and limits that may be advanced to corporate counterparties by reference to their longterm credit ratings. The credit risk in respect of customer balances incurred on nonpayment of premiums or contributions will only persist during the grace period specified in the policy document or trust deed until expiry, when the policy is either paid up or terminated. Commission paid to intermediaries is netted off against amounts receivable from them to reduce the risk of doubtful debts.
The Group issues unitlinked investment policies in a number of its operations. In the unitlinked business, the policyholder bears the investment risk on the assets held in the unitlinked funds, as the policy benefits are directly linked to the value of the assets in the fund. Therefore, the Group has no material credit risk on unit linked financial assets.
113
IFRS 7.36(a)
31 December 2010 Financial instruments Derivative financial assets Derivative financial instruments heldfortrading Cash flow hedges Fair value hedges Heldtomaturity financial assets Debt securities Loans and receivables Availableforsale financial assets Equity securities Debt securities Financial assets at fair value through profit or loss Equity securities Debt securities Mutual funds Credit institutions Reinsurance assets Insurance receivables Cash and cash equivalents Total credit risk exposure
Notes
25 677 867 638 26(a) 26(b) 26(c) 2,104 7,264 71,070 38,607 26(d) 10,768 5,607 27 29 32 36,521 35,272 22,723 232,118 4,796 5,359 7,730 989 18,874 15,564 10,966 7,730 989 36,521 35,272 22,723 250,992 Total 000
IFRS 7.34(a)
31 December 2009 Financial instruments Derivative financial assets Derivative financial instruments heldfortrading Cash flow hedges Fair value hedges Heldtomaturity financial assets Debt securities Loans and receivables Availableforsale financial assets Equity securities Debt securities Financial assets at fair value through profit or loss Equity securities Debt securities Mutual funds Credit institutions Reinsurance assets Insurance receivables Cash and cash equivalents Total credit risk exposure
Notes
IFRS 7.36(a)
25 187 593 460 26(a) 26(b) 26(c) 1,677 6,137 55,466 23,951 26(d) 6,910 341 34,711 19,914 27,798 178,145 6,414 4,321 2,091 1,112 13,938 13,324 4,662 2,091 1,112 34,711 19,914 27,798 192,083
IFRS 7.34(a) IFRS 7.36(a)
27 29 32
The fair value of derivatives shown on the statement of financial position represents the current risk exposure but not the maximum risk exposure that could arise in the future as a result of the changes in values.
114
Industry analysis
31 December 2010 Financial Services 000 Derivative financial assets Derivative financial instruments held for trading Cash flow hedges Fair value hedges Heldtomaturity financial assets Debt securities Loans and receivables Availableforsale financial assets Equity securities Debt securities Financial assets at fair value through profit or loss Equity securities Debt securities Mutual funds Credit institutions Reinsurance assets Insurance receivables Cash and cash equivalents Total credit risk exposure 22,723 154,835 32,487 34,066 13,954 14,996 3,596 9,266 22,723 250,992 6,790 2,116 1,574 989 11,469 36,521 3,898 7,865 7,865 2,367 985 564 3,916 23,479 3,789 325 4,114 7,895 2,357 2,357 7,630 753 765 1,518 1,865 2,145 4,010 4,578 15,564 10,966 7,730 989 35,249 36,521 35,272 65,400 9,364 74,764 23,456 23,456 2,345 2,345 1,789 1,789 4,567 4,567 425 1,653 2,078 678 678 71,070 38,607 109,677 2,938 4,326 7,264 436 436 1,166 1,166 156 156 346 346 2,104 2,104 677 867 542 2,086 96 96 677 867 638 2,182 Government 000 Consumers 000 Retail and Wholesale1 000 Construction and Manufacturing Materials2 and Petroleum 000 000 Services3 000 Total 000
115
Services3 000
Total 000
Derivative financial assets Derivative financial instruments held for trading Cash flow hedges Fair value hedges Heldtomaturity financial assets Debt securities Loans and receivables Availableforsale financial assets Equity securities Debt securities Financial assets at fair value through profit or loss Equity securities Debt securities Mutual funds Credit institutions Reinsurance assets Insurance receivables Cash and cash equivalents Total credit risk exposure 446 446 3,811 829 829 49,576 1,443 51,019 4,650 1,812 1,264 1,112 8,838 34,711 3,738 27,798 131,365 19,521 19,521 1,865 1,865 22,215 8,479 18,302 5,895 9,220 5,460 1,235 3,166 567 2,355 2,326 2,045 2,045 4,467 985 5,452 189 189 2,489 325 2,814 4,787 357 357 4,787 425 753 1,178 753 753 1,110 678 965 145 678 86 86 316 316
236 236
187 593 460 1,240 1,677 1,677 6,137 55,466 23,951 79,417 13,324 4,662 2,091 1,112 21,189 34,711 19,914 27,798 192,083
1 2 3
Retail and wholesale includes Beverages Construction and Materials includes Aerospace and Defence Services includes Telecommunication, Media, Electricity, Consumers, IT, Health Care and Other
116
Total 000
Financial instruments Derivative financial assets Derivatives heldfortrading Cash flow hedges Fair value hedges Heldtomaturity financial assets Debt securities Loans and receivables Availableforsale financial assets Equity securities Debt securities Financial assets at fair value through profit or loss Equity securities Debt securities Mutual funds Credit institutions Reinsurance assets Insurance receivables Cash and cash equivalents Total 677 867 638 677 867 638
2,104
6,659
491
114
2,104 7,264
44,497 25,457
26,573 13,150
71,070 38,607
20 9,560 55,962
820 1,311
IFRS 7.34(a)
117
Total 000
Financial instruments Derivative financial assets Derivative financial instruments heldfortrading Cash flow hedges Fair value hedges Heldtomaturity financial assets Debt securities Loans and receivables Availableforsale financial assets Equity securities Debt securities Financial assets at fair value through profit or loss Equity securities Debt securities Mutual funds Credit institutions Reinsurance assets Insurance receivables Cash and cash equivalents Total
1,677
5,789
201
147
1,677 6,137
30,788 16,440
24,678 7,511
55,466 23,951
2 14,758 52,738
600 801
IFRS 7.34(a)
Commentary
Paragraph BC54 of IFRS 7 states, The board of directors noted that information about credit quality gives a greater insight into the credit risk of assets and helps users to assess whether such assets are more or less likely to become impaired in the future. Because this information will vary between companies, the board of directors decided not to specify a particular method for giving this information, but rather to allow each entity to devise a method that is appropriate to its circumstances. Paragraph 36(c) of IFRS 7 and paragraph 37(a) of IFRS 7 require the disclosure of the quality of financial assets that are neither impaired nor past due and an analysis of the age of financial assets that are past due as at the reporting date, but not yet impaired. This is required by the standard, although disclosure of the fact that many financial assets could be past due by only a few days is arguably of limited value and potentially misleading. Reinsurance asset figures exclude the reinsurers share of unearned premiums as this is not a financial asset.
118
Total 000
IFRS 7.36(c)
71 867 407
606 231
1,610
494
7,264
2,104 7,264
19,849 9,559
24,648 15,898
26,573 13,150
71,070 38,607
IFRS 7.34(a)
Total 000
IFRS 7.36(c)
92 593 264
95 196
1,540
137
6,137
1,677 6,137
18,912 9,357
11,876 7,083
24,678 7,511
55,466 23,951
1,538 1,231
430 1,065
14,937
2,769
1,495
53,263
13,938
119
The table below provides information regarding the credit risk exposure of the Group according to the Groups categorisation of counterparties by the Euroland Credit Agencys credit rating: 31 December 2010 AAA 000 Investment grade Noninvestment grade: satisfactory Noninvestment grade: unsatisfactory Pastdue but not impaired Total 102,869 102,869 AA 000 47,340 47,340 BBB 000 23,191 23,191 BB 000 1,224
IFRS 7.36(a)
Total 000
Total 000
IFRS 7.36(c)
516 1,740
IFRS 7.34(a)
31 December 2009
Total 000
Total 000
IFRS 7.36(c)
Investment grade Noninvestment grade: satisfactory Noninvestment grade: unsatisfactory Pastdue but not impaired Total
428 1,495
IFRS 7.34(a)
It is the Groups policy to maintain accurate and consistent risk ratings across its credit portfolio. This enables management to focus on the applicable risks and the comparison of credit exposures across all lines of business, geographic regions and products. The rating system is supported by a variety of financial analytics combined with processed market information to provide the main inputs for the measurement of counterparty risk. All internal risk ratings are tailored to the various categories and are derived in accordance with the Groups rating policy. The attributable risk ratings are assessed and updated regularly. The Group has not provided the credit risk analysis for the financial assets of the unitlinked business. This is due to the fact that, in unitlinked business, the liability to policyholders is linked to the performance and value of the assets that back those liabilities and the shareholders have no direct exposure to any credit risk in those assets. During the year, no credit exposure limits were exceeded. The Group actively manages its product mix to ensure that there is no significant concentration of credit risk.
IFRS 7.34(c)
120
Unitlinked 000
Total past due but not impaired 000 114 516 815 1,445 Total past due but not impaired 000 147 428 644 1,219
IFRS 7.37(a)
IFRS 7.37(a)
Unitlinked 000
IFRS 7.37(c)
IFRS 7.16
Commentary
Paragraph 36(c) of IFRS 7 and paragraph 37(a) of IFRS 7 require the disclosure of the quality of financial assets that are neither impaired nor past due and an analysis of the age of financial assets that are past due as at the reporting date, but not yet impaired. This is required by the standard, although disclosure of the fact that many financial assets could be past due by only a few days is arguably of limited value and potentially misleading.
121
IFRS 7.33(a)
A Group liquidity risk policy which sets out the assessment and determination of what constitutes liquidity risk for the Group. Compliance with the policy is monitored and exposures and breaches are reported to the Group risk committee. The policy is regularly reviewed for pertinence and for changes in the risk environment. Guidelines are set for asset allocations, portfolio limit structures and maturity profiles of assets, in order to ensure sufficient funding available to meet insurance and investment contracts obligations. Contingency funding plans are in place, which specify minimum proportions of funds to meet emergency calls as well as specifying events that would trigger such plans. The Groups catastrophe excessofloss reinsurance contracts contain clauses permitting the immediate draw down of funds to meet claim payments should claim events exceed a certain size.
Maturity profiles The table that follows summarises the maturity profile of the nonderivative financial assets and financial liabilities of the Group based on remaining undiscounted contractual obligations, including interest payable and receivable. For the derivative liabilities, the total fair value is disclosed in the up to one year column as the Group manages liquidity risk for a trading portfolio of derivatives on the basis of fair value and management believes that this presentation more accurately reflects the liquidity of the markets in which the financial instruments are traded and the availability of market observable inputs to measure these instruments. The interest rate swaps held fortrading and fair value hedges are also disclosed in the up to one year column as management believes they are not essential for an understanding of the timing of the cash flows. For insurance contracts liabilities and reinsurance assets, maturity profiles are determined based on estimated timing of net cash outflows from the recognised insurance liabilities. Unearned premiums and the reinsurers share of unearned premiums have been excluded from the analysis as they are not contractual obligations. Unitlinked liabilities are repayable or transferable on demand and are included in the up to a year column. Repayments which are subject to notice are treated as if notice were to be given immediately. The Group maintains a portfolio of highly marketable and diverse assets that can be easily liquidated in the event of an unforeseen interruption of cash flow. The Group also has committed lines of credit that it can access to meet liquidity needs to assist users in understanding how assets and liabilities have been matched. Reinsurance assets have been presented on the same basis as insurance liabilities. Loans and receivables include contractual interest receivable.
IFRS 7.39(b), (c), IFRS 7.B11E(a), (c), IFRS 7.39(a), (c), IAS 1.61, IFRS 7.39(b), B11B
IFRS 4.39(d)(i)
122
Total 000
6,321 7,234
3,801
79,070
11,742 25,297
3,444 7,245
Carrying Amount 000 Financial liabilities Insurance contract liabilities With DPF Without DPF Investment contract liabilities With DPF Without DPF Net asset value attributable to unitholders Derivative financial liabilities Borrowings Other financial liabilities Insurance payables Trade and other payables Total liabilities 49,578 127,134
Up to a year 000
13 years 000
Total 000
6,084 42,516
12,071 18,005
11,300 11,367
13,903 50,010
6,220 5,236
49,578 127,134
7,366 7,854
4,826 7,145
523 160
975 180
643 273
554 152
7,521 7,910
4,586 35,345
6,758 30,580
64,829
12,162
123
Total 000
6,123 6,533
3,545
55,466
46 6,536 12,411
12,299 24,955
3,222 6,767
15,415
20,904 34,711
Carrying Amount 000 Insurance contract liabilities With DPF Without DPF Investment contract liabilities With DPF Without DPF Net asset value attributable to unitholders Derivative financial liabilities Borrowings Other financial liabilities Insurance payables Trade and other payables Total liabilities 25,180 101,080
Up to a year 000
13 years 000
Total 000
5,692 34,534
6,354 9,069
5,100 13,041
7,809 34,516
225 9,920
25,180 101,080
4,281 7,277
900 6,950
1,655 125
825 140
805 160
550 120
4,735 7,495
6,674 23,877
8,168 27,274
43,290
10,815
124
Commentary
The amendments to IFRS 7 require a maturity analysis for derivative financial liabilities that is based on how the entity manages the liquidity risk associated with such instruments. In addition, for those derivative financial liabilities for which contractual liabilities are essential for an understanding of the timing of the cash flows, for example, interest rate swaps with remaining maturity of five years in a cash flow hedge or loan commitments, a contractual maturity analysis is required. Good Insurance has no interest rate swaps in cash flow hedges, therefore, all the derivative instruments are disclosed in up to a year column at their fair value. A contractual maturity analysis for nonderivative financial liabilities (including issued financial guarantee contracts) which include the remaining contractual maturities is required. These are the contractual undiscounted cash flows. The standard also requires an entity to disclose a maturity analysis of financial assets that it holds for managing liquidity risk (e.g., financial assets that are readily saleable or expected to generate cash inflows to meet cash outflows on financial liabilities) if that information is necessary to enable users of its financial statements to evaluate the nature and extent of liquidity risk. It is anticipated that this will apply to most insurers as most insurers hold financial assets to manage liquidity risk. Good insurance has made these maturity disclosures for its financial assets. For recognised insurance liabilities, paragraph 39(d)(i) of IFRS 4.39 permits the maturity analysis to be based on expected net cash outflows resulting from recognised insurance liabilities. The Group has elected to use this alternative presentation for the maturity analysis of its insurance liabilities. Unearned premiums are excluded from this analysis as these are not contractual liabilities.
The table below summarises the expected utilisation or settlement of assets and liabilities. Maturity analysis on expected maturity bases 31 December 2010 Current* 000 Intangible assets Deferred expenses Property and equipment Investment properties Investment in an associate Financial instruments Derivative financial assets Heldtomaturity financial assets Loans and receivables Availablefor salefinancial assets Financial assets at fair value through profit or loss Reinsurance assets Income tax receivable Insurance receivables Accrued income Cash and cash equivalents Total assets ( excluding goodwill) 34 1,464 1,614 125 7,264 43,471 4,858 26,301 2,995 35,272 1,698 22,723 147,819 Non current 000 39,104 11,982 4,066 4,199 2,120 568 1,979 66,206 11,517 10,220 151,961
Total 000 39,138 13,446 4,066 4,199 2,120 2,182 2,104 7,264 109,677 35,249 36,521 2,995 35,272 1,698 22,723 318,654
125
Unitlinked 000
Total 000
44,100 93,963 4,549 510 4,351 4,337 1,262 937 5,452 159,461
49,578 127,134 7,366 7,854 4,449 4,365 16,562 1,782 7,743 5,452 520 5,157 17,307 255,269
*Paragraph 61 of IAS 1 requires disclosure of the two sub totals (less than and greater than 12 months) of expected maturities.
31 December 2009 Current* 000 Intangible assets Deferred expenses Property and equipment Investment properties Investment in an associate Financial instruments Derivative financial assets Heldtomaturity financial assets Loans and receivables Availablefor salefinancial assets Financial assets at fair value through profit or loss Reinsurance assets Income tax receivable Insurance receivables Accrued income Cash and cash equivalents Total assets (excluding goodwill) 25 1,128 494 119 6,137 29,599 7,029 23,785 2,812 19,914 1,557 27,798 120,397
Non current 000 419 10,349 3,750 3,943 1,991 746 1,558 49,818 222 10,926 83,722
Total 000 444 11,477 3,750 3,943 1,991 1,240 1,677 6,137 79,417 21,189 34,711 2,812 19,914 1,557 27,798 218,057
126
Unitlinked 000
Total 000
4,970 21,345 1,344 124 26 6,477 799 7,272 4,841 11,638 58,836
25,180 101,080 4,281 7,277 4,152 4,334 21,064 1,758 7,272 1,848 367 4,841 11,638 195,092
*Paragraph 61 of IAS 1 requires disclosure of the two sub totals (less than and greater than 12 months) of expected maturities.
Commentary
Paragraph 61 of IAS 1 requires disclosure of the two sub totals (less than and greater than 12 months) of expected maturities. The amended IFRS 7 Appendix B.11E requires an entity shall disclose a maturity analysis of financial assets it holds for managing liquidity risk (e.g., financial assets that are readily saleable or expected to generate cash inflows to meet cash outflows on financial liabilities), if that information is necessary to enable users of its financial statements to evaluate the nature and extent of liquidity risk. Most insurers hold financial assets to manage liquidity risk and therefore Good Insurance has provided a maturity analysis of financial assets as illustrated in the table above.
(3) Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: foreign exchange rates (currency risk), market interest rates (interest rate risk) and market prices (price risk).
X
IFRS 7.33(a)
A Group market risk policy sets out the assessment and determination of what constitutes market risk for the Group. Compliance with the policy is monitored and exposures and breaches are reported to the Group risk committee. The policy is reviewed regularly for pertinence and for changes in the risk environment. Guidelines are set for asset allocation and portfolio limit structure, to ensure that assets back specific policyholders liabilities and that assets are held to deliver income and gains for policyholders which are in line with expectations of the policyholders. The Group stipulates diversification benchmarks by type of instrument and geographical area, as the Group are exposed to guaranteed bonuses, cash and annuity options when interest rates falls. There is strict control over hedging activities (e.g., equity derivatives are only permitted to be held to facilitate portfolio management or to reduce investment risk).
The Group issues unitlinked investment policies in a number of its operations. In the unitlinked business, the policyholder bears the investment risk on the assets held in the unitlinked funds as the policy benefits are directly linked to the value of the assets in the fund. The Groups exposure to market risk on this business is limited to the extent that income arising from asset management charges is based on the value of assets in the fund.
127
IFRS 7.34(a)
US Dollar 000 6,521 38,593 1,025 533 421 2,456 26,915 13,448 7,425 8,124 105,461
Total 000 9,445 39,138 13,446 4,066 4,199 2,120 2,182 2,104 7,264 109,677 35,249 36,521 2,995 35,272 1,698 22,723 328,099
IFRS 7.34(a)
7,884 52,078 1,357 4,955 4,449 4,365 16,562 552 7,743 4,385 234 2,329 8,745 115,638
18,071 30,747 4,268 328 356 1,067 104 1,023 8,562 64,526
49,578 127,134 7,366 7,854 4,449 4,365 16,562 1,782 7,743 5,452 520 5,157 17,307 255,269
IFRS 7.34(a)
128
Total 000 2,924 444 11,477 3,750 3,943 1,991 1,240 1,677 6,137 79,417 21,189 34,711 2,812 19,914 1,557 27,798 220,981
IFRS 7.34(a)
9,504 47,947 1,753 3,275 4,152 4,334 21,064 1,091 7,272 1,848 165 2,178 11,638 116,221
25,180 101,080 4,281 7,277 4,152 4,334 21,064 1,758 7,272 1,848 367 4,841 11,638 195,092
IFRS 7.34(a)
The Group has no significant concentration of currency risk. The analysis that follows is performed for reasonably possible movements in key variables with all other variables held constant, showing the impact on profit before tax and equity due to changes in the fair value of currency sensitive monetary assets and liabilities including insurance contract claim liabilities. The correlation of variables will have a significant effect in determining the ultimate impact on market risk, but to demonstrate the impact due to changes in variables, variables had to be changed on an individual basis. It should be noted that movements in these variables are nonlinear.
129
Currency
The method used for deriving sensitivity information and significant variables did not change from the previous period.
IFRS 7.40(c)
Commentary
In disclosing currency risk sensitivities, companies will need to aggregate information to display the overall picture. However aggregation should not result in disclosures which combine information from significantly different economic environments with different risk characteristics. For each relevant risk variable, the entity should determine the reasonably possible changes based on the economic environment in which the entity operates over the period to the next reporting date. The reasonably possible changes should not include remote scenarios (IFRS 7.B19). Paragraph 39(d)(ii) of IFRS 4 and paragraph 39A(a) of IFRS 4 permit the use of embedded value (EV) sensitivity disclosures instead of IFRS 7 sensitivity disclosures for insurance and market risk sensitivities. This disclosure option is only allowed if insurance and market risk sensitivities are managed on an EV basis. Another permitted alternative is to base sensitivity disclosures on Economic Capital measures. This is also only allowed if insurance and market risk sensitivities are actually managed on that basis. For illustrative purposes, EV sensitivity disclosures, based on observed best practice in the insurance industry, have been provided in Appendix 3.
(b) Interest rate risk Interest rate risk is the risk that the value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Floating rate instruments expose the Group to cash flow interest risk, whereas fixed interest rate instruments expose the Group to fair value interest risk. The Groups interest risk policy requires it to manage interest rate risk by maintaining an appropriate mix of fixed and variable rate instruments. The policy also requires it to manage the maturities of interest bearing financial assets and interest bearing financial liabilities. Any gap between fixed and variable rate instruments and their maturities are effectively managed by the Group through derivative financial instruments. Interest on floating rate instruments is repriced at intervals of less than one year. Interest on fixed interest rate instruments is priced at inception of the financial instrument and is fixed until maturity. The Group has no significant concentration of interest rate risk. The analysis that follows is performed for reasonably possible movements in key variables with all other variables held constant, showing the impact on profit before tax (due to changes in fair value of floating rate financial assets and liabilities, including the effect of fair value hedges) and equity (that reflects adjustments to profit before tax and revaluing fixed rate availableforsale financial assets, including the effect of cash flow hedges). The correlation of variables will have a significant effect in determining the ultimate impact on interest rate risk, but to demonstrate the impact due to changes in variables, variables had to be changed on an individual basis. It should be noted that movements in these variables are nonlinear.
IFRS 7.33(b) IFRS 7.33(a)
IFRS 7.34(c)
130
Total 000
Impact on equity* 31 December 2009 Change in variables Notes + 100 basis points + 100 basis points 100 basis points 100 basis points Impact on profit before tax 000 Up to a year 000 13 years 000 35 years 000 Over 5 years 000
Total 000
The method used for deriving sensitivity information and significant variables did not change from the previous period.
IFRS 7.40(c)
Commentary
In disclosing interest rate risk sensitivities, companies will need to aggregate information to display the overall picture. However, aggregation should not result in disclosures which combine information from significantly different economic environments with different risk characteristics. For each relevant risk variable, the entity should determine the reasonably possible changes based on the economic environment in which the entity operates over the period to the next reporting date. The reasonably possible changes should not include remote scenarios (IFRS 7.B19). Paragraph 39(d)(ii) of IFRS 4 and paragraph 39A(a) of IFRS 4 permit the use of embedded value (EV) sensitivity disclosures instead of IFRS 7 sensitivity disclosures for insurance and market risk sensitivities. This disclosure option is only allowed if insurance and market risk sensitivities are managed on an EV basis. Another allowed alternative disclosure is to base sensitivity disclosures on Economic Capital measures. This is also only allowed if insurance and market risk sensitivities are actually managed on that basis. For illustrative purposes, EV sensitivity disclosures, based on observed best practice in the insurance industry, have been provided in Appendix 3.
131
IFRS 7.33(b)
IFRS 7.33(b)
Change in variables Market indices Euronext 100 FTSE 100 NYSE Euronext 100 FTSE 100 NYSE + 15% + 10% + 10% 15 % 10 % 10 %
The method used for deriving sensitivity information and significant variables did not change from the previous period.
IFRS 7.40(c)
Commentary
In disclosing price risk sensitivities, companies will need to aggregate information to display the overall picture. However, aggregation should not result in disclosures which combine information from significantly different economic environments with different risk characteristics. For each relevant risk variable, the entity should determine the reasonably possible changes based on the economic environment in which the entity operates over the period to the next reporting date. The reasonably possible changes should not include remote scenarios (IFRS 7.B19). Paragraph 39(d)(ii) of IFRS 4) and paragraph 39A(A) permit the use of embedded value (EV) sensitivity disclosures instead of IFRS 7 sensitivity disclosures for insurance and market risk sensitivities. This disclosure option is only allowed, if insurance and market risk sensitivities are managed on an EV basis. Another allowed alternative disclosure is to base sensitivity disclosures on Economic Capital measures. This is also only allowed if insurance and market risk sensitivities are actually managed on that basis. For illustrative purposes, EV sensitivity disclosures, based on observed best practice in the insurance industry, have been provided in Appendix 3.
132
Change in variables
Exchange rate Interest yield curve Stock market Discount rate Exchange rate Interest yield curve Stock market Discount rate
The method used for deriving sensitivity information and significant variables did not change from the previous period. Operational risks Operational risk is the risk of loss arising from system failure, human error, fraud or external events. When controls fail to perform, operational risks can cause damage to reputation, have legal or regulatory implications or can lead to financial loss. The Group cannot expect to eliminate all operational risks, but by initiating a rigorous control framework and by monitoring and responding to potential risks, the Group is able to manage the risks. Controls include effective segregation of duties, access controls, authorisation and reconciliation procedures, staff education and assessment processes, including the use of internal audit. Business risks such as changes in environment, technology and the industry are monitored through the Groups strategic planning and budgeting process.
IFRS 7.40(c)
Commentary
IFRS 7 does not require any disclosures on operational risk because it is not necessarily related to financial instruments. The above narrative on operational risk is included for illustrative purposes only and does not cover all the possible operational risks for an insurer.
133
Notes Profit before tax Purchase of derivatives Proceeds from sale of derivatives Purchase of fair value through profit or loss financial assets Proceeds from disposals of fair value through profit or loss financial assets Withdrawals by unitholders Purchase of availableforsale financial assets Proceeds from sale of availableforsale financial assets Maturity of availableforsale financial assets Purchase of heldtomaturity financial assets Maturity of heldtomaturity financial assets Noncash items Investment income Finance costs Realised gains recorded in the income statement Fair value gains recorded in the income statement Share of associates profit Profit attributable to unitholders Expenses deferred during the year Deferred fee income released to the income statement Sharebased payment expense Amortisation of deferred expenses Amortisation of intangible assets Depreciation of property and equipment Foreign exchange adjustments Movements in items in the statement of financial position Increase in reinsurance assets Increase in insurance receivables Increase in loans and receivables Increase in life insurance contract liabilities Increase in nonlife insurance contract liabilities Increase in investment contract liabilities Increase in pension benefit obligation Increase in deposits received from reinsurers Increase in insurance payables Increase in deferred revenue (Decrease)/increase in trade and other payables Cash generated from operating activities
7 11 8 9 22 35 30 40 19 12 12 12
(8,221) 1,066 (213) (1,044) (129) 267 (5,368) (9) 18 3,399 672 335 (128)
(7,682) 954 (93) (992) (230) 111 (3,222) (7) 14 2,109 48 379 (123)
IAS 7.20(a)
(1,810) (3,206) (1,062) 5,344 3,090 150 297 126 316 40 (4,810) 4,518
(1,901) (2,423) (927) 4,472 3,211 258 91 128 354 43 470 6,310
IAS 7.20(c)
The Group classifies the cash flows from the acquisition and disposal of financial assets as operating cash flows, as the purchases are funded from the cash flows associated with the origination of insurance and investment contracts, net of the cash flows for payments of benefits and claims incurred for insurance and investment contracts, which are respectively treated under operating activities.
Commentary
Purchases and sales of heldtomaturity and availableforsale financial assets may also be presented as investing cash flows.
134
IAS 17.56(a)
The Group has entered into commercial leases on certain property and equipment. These leases have an average life of between three and five years with no renewal option included in the contracts. There are no restrictions placed upon the Group by entering into the leases. Future minimum rentals payable under noncancellable operating leases as at 31 December are as follows: 2010 000 Within one year After one year but not more than five years More than five years Total operating lease rentals payable 255 412 208 875 2009 000 200 400 200 800
135
100
Good Investment Management Services Limited Good American Life Company Good Investment Management Services Limited
Euroland
Euroland
100
(a) Transactions with related parties The Group enters into transactions with its associate and key management personnel in the normal course of business. The sales to and purchases from related parties are made at normal market prices. Details of significant transactions carried out during the year with related parties are as follows: 2010 000 Sale of Insurance and investment contracts to associate Insurance and investment contracts to key management personnel Purchase of Insurance and investment contracts from associate (b) Balances with related parties (1) Receivables from and payables to related parties are as follows: 2010 000 2009 000 762 10 2009 000 689 9
IAS 24.17(a)
IAS 24.21
221
196
IAS 24.17(b)
Notes Receivables from related parties Associate Key management personnel 26(b)
376 6 382
352 5 357
Outstanding balances at the reporting date are unsecured and interest free. Settlement will take place in cash. There was no provision for doubtful debts at the reporting date and no bad debt expense in the year (2009: Nil).
136
314 22 336
251 20 271
The loan to the associate is payable in full on 1 June 2010. Interest is charged at EURIBOR + 0.8. The Group offers the possibility for senior management to receive up to a maximum of 20,000 repayable within five years from the date of disbursement. Such loans are unsecured and the same interest rate as for long term company loans is applicable (currently EURIBOR plus 0.8). (c) Compensation of key management personnel Key management personnel of the Group includes all directors, executive and nonexecutive, and senior management. The summary of compensation of key management personnel for the year is as follows: 2010 000 Salaries Fees Bonuses Other shortterm employment benefits Sharebased payment Post employment pension benefits Total compensation of key management personnel (d) Investment in associate No restrictions are placed on the ability of the associate to transfer funds to the parent company in the form of cash dividends or for the repayment of loans when due. No guarantees or collaterals were provided to the associate.
IAS 24.20(h) IAS 24.16
137
IFRS 1.22, 23
IFRS has been applied retrospectively, except for certain optional and mandatory exemptions from full retrospective application, as provided for by IFRS 1 (Revised 2009) FirstTime Adoption of International Financial Reporting Standards, as detailed below.
IFRS 1 Appendix C
Business combinations The Group has elected to apply IFRS 3 (Revised) Business Combinations prospectively only to business combinations on or after transition date. As a result, business combinations prior to transition have not been restated. Upon adoption of IFRS, the Group is now only permitted to recognise existing liabilities contained in the acquirees financial statements on acquisition, rather than recognising liabilities arising from acquisitions regardless of whether the acquiree had recognised these types of liabilities or not. Fair value or revaluation value as deemed cost The Group has elected to use the Euroland GAAP revaluation value of owneroccupied property as the deemed cost at the date of transition. A revaluation of assets in this category was performed on transition date. Post retirement benefits (Defined benefit scheme) The Group elected to recognise all cumulative unrecognised actuarial gains and losses at transition. The corridor approach for recognising actuarial gains and losses will be applied to gains and losses occurring after transition. Designation of financial assets and financial liabilities At the date of transition, the Group chose to designate according to the IFRS designation criteria, certain of its existing financial assets as at fair value through profit or loss. Derecognition of financial assets and financial liabilities The Group has applied the derecognition requirements under IFRS prospectively for transactions occurring on or after transition when applicable. Hedge accounting In line with the transitional provisions of IFRS 1, the Group will continue to apply hedge accounting for those hedging relationships that meet the criteria of hedge accounting under IFRS. At date of transition, ineffective hedge relationships will continue to be accounted for, but could subsequently be derecognised under IFRS on failing the effectiveness test. Estimates At the date of transition, the Groups estimates under IFRS are consistent with estimates previously made under Euroland GAAP. Insurance contracts The Group has elected to disclose only five years of claims experience data in its claims development tables as permitted in the first financial year in which it adopts IFRS 4 Insurance Contracts. These disclosures will be extended for an additional year in each succeeding year until the 10-year information requirement has been satisfied.
IFRS 1 Appendix D
IFRS 1. D10
IFRS 1. D19
IFRS 1. B2
IFRS 1. B4
IFRS 1. D4
138
1 January 2009
Adjustments 000
IFRS 000
Assets Goodwill Intangible assets Deferred expenses Property and equipment Investment properties Investment in an associate Financial Instruments Derivative financial instruments Heldtomaturity financial assets Loans and receivables Availableforsale financial assets Financial assets at fair value through profit or loss Reinsurance assets Income tax receivable Insurance receivables Accrued income Cash and cash equivalents Total assets Equity and liabilities Equity Issued share capital Additional paidin capital Revaluation reserves Retained earnings Total ordinary shareholders equity Other equity instruments Total equity Liabilities Insurance contract liabilities Investment contract liabilities Pension benefit obligation Deferred revenue Borrowings Derivative financial instruments Other financial liabilities Deferred tax liability Insurance payables Net asset value attributable to unitholders Trade and other payables Total liabilities Total equity and liabilities
2,938 174 4,093 5,759 3,957 1,808 2,297 1,047 5,130 76,784 19,244 32,810 2,454 35,167 4,065 3,760 201,487
2,924 174 10,364 6,089 3,627 1,808 2,297 1,047 5,130 76,784 19,244 32,810 2,454 35,167 4,065 3,760 207,744
8,382 1,000 385 159 9,926 9,926 e(5), e(6) e(5) e(3) e(7) 129,976 3,122 3,338 22,888 1,552 6,791 1,741 4,487 315 17,351 191,561 201,487
1,326 7,484 8,810 8,810 (11,399) 11,300 845 960 328 (4,587) (2,553) 6,257
8,382 1,000 1,711 7,643 18,736 18,736 118,577 11,300 3,967 4,298 22,888 1,552 6,791 2,069 4,487 315 12,764 189,008 207,744
e(1)
139
31 December 2009
Adjustments 000
IFRS 000
Assets Goodwill Intangible assets Deferred expenses Property and equipment Investment properties Investment in an associate Financial Instruments Derivative financial instruments Heldtomaturity financial assets Loans and receivables Availableforsale financial assets Financial assets at fair value through profit or loss Reinsurance assets Income tax receivable Insurance receivables Accrued income Cash and cash equivalents Total assets Equity and liabilities Equity Issued share capital Additional paidin capital Revaluation reserves Retained earnings Total ordinary shareholders equity Other equity instruments Total equity Liabilities Insurance contract liabilities Investment contract liabilities Pension benefit obligation Deferred revenue Borrowings Derivative financial instruments Other financial liabilities Deferred tax liability Net asset value attributable to unitholders Insurance payables Trade and other payables Total liabilities Total equity and liabilities
2,977 444 5,938 3,420 4,249 1,991 1,240 1,677 6,137 79,417 21,189 34,711 2,812 19,914 2,157 27,198 215,471
2,924 444 11,477 3,750 3,943 1,991 1,240 1,677 6,137 79,417 21,189 34,711 2,812 19,914 2,157 27,198 220,981
7,385 1,045 664 8,633 17,727 17,727 e(5), (6) e(5) e(3) e(7) 137,922 3,275 2,995 21,064 1,758 7,272 693 367 4,841 17,557 197,744 215,471
3,338 4,824 8,162 8,162 (11,662) 11,558 877 1,339 1,155 (5,919) (2,652) 5,510
7,385 1,045 4,002 13,457 25,889 25,889 126,260 11,558 4,152 4,334 21,064 1,758 7,272 1,848 367 4,841 11,638 195,092 220,981
e(1)
140
31 December 2009
Adjustments 000 (1,218) (1,218) (379) (444) (823) (2,041) 1,223 1,223 (781) (781) 442 (1,599) (1,599) (1,067) (2,666)
IFRS 000 73,451 (19,112) 54,339 2,231 7,682 93 992 85 11,083 65,422 (39,410) 10,546 (7,172) 1,691 (34,345) (954) (111) (20,378) (21,443) (55,788) 9,634 230 9,864 (1,973) 7,891
Gross premiums Reinsurers share of gross premiums Net premiums Fees and commission income Investment income Realised gains Fair value gains and losses Other operating revenue Other revenue Total income Gross benefits and claims paid Reinsurers share of gross benefits and claims paid Gross change in contract liabilities Reinsurers share of gross change in contract liabilities Net benefits and claims Finance costs Profit attributable to unitholders Other operating and administrative expenses Other expenses Total benefits, claims and expenses Profit before share of associates profit Share of associates profit Profit before tax Income tax expense Profit for the year Consolidated statement of comprehensive income
e(5)
e(7)
e(4), e(9)
e(5), e(6)
e(1)
Appendix 1 Notes
Profit for the year Exchange differences on translating foreign operations Net (loss)/gain on cash flow hedges Net (loss)/gain on availableforsale assets Income tax relating to components of other comprehensive income Other comprehensive income for the year, net of tax Total comprehensive income for the year, net of tax (d) Cash flow statement
e(4)
IFRS 1. 40
The Group did not present a cash flow statement under Euroland GAAP. Therefore, it is not required to explain the material adjustments to the cash flow statement upon first time adoption of IFRS.
141
The basis of material adjustments between Euroland GAAP and IFRS are as follows. (1) Deferred tax Under Euroland GAAP deferred tax assets and liabilities are recognised under the liability method for all timing differences that are expected to reverse in the foreseeable future. Under IAS 12 Income Taxes full provision is made for deferred tax assets and liabilities arising from temporary differences between the recognition of gains and losses in the financial statements and their recognition in the income tax return. Deferred tax assets are recognised for unused tax losses and tax credits to the extent that it is probable that future profits will be utilised against the unused tax losses and tax credits. Year ended 31 December 2010 000 Additional deferred tax expense adjustment Total dividends charged in the year Under Euroland GAAP, the total dividends charge in the year is recorded within the income statement, but under IFRS it is recorded within the statement of changes in equity. Under Euroland GAAP, the dividends for the year ended 31 December 2009 charged to the income statement were 9,319,000. (2) Goodwill Reversal of goodwill amortisation and the recognition of a goodwill impairment adjustment Under Euroland GAAP, goodwill arising on acquisition is amortised on a straight line basis over a period of up to 20 years. Goodwill was only reviewed for impairment whenever there was an indicator of impairment. Under IFRS, goodwill arising on business combinations is no longer amortised, rather, it is subject to an annual impairment test at a cashgenerating unit level. Consequently, the 2008 Euroland amortisation charge of 190,000 has been reversed and an impairment loss of 243,000 has been recognised due to the different level of testing required under IFRS. Year ended 31 December 2010 000 Reversal of goodwill (39) 31 December 2009 000 (53) 1 January 2009 000 (14) (827)
(3) Full recognition of cumulative unrecognised actuarial losses on post retirement benefits Under Euroland GAAP, the cost of pension benefits is recorded in the income statement using actuarial valuation methods that provide a substantially even charge over the expected service lives of employees. Under IAS 19 Employee Benefits, the pension obligation is calculated by using the projected unit credit method which matches the fair value of the obligation against the fair value of the underlying plan assets. The cumulative unrecognised actuarial gains or losses on first time adoption are fully recognised within the statement of changes in equity. Subsequent actuarial gains or losses are recognised within the income statement by applying the corridor method. 31 December 2009 000 Recognition of cumulative unrecognised actuarial losses on post retirement benefits 1 January 2009 000
877
845
142
410
2,894
143
144
IFRS 4.30
Notes Profit for the year Other comprehensive income Exchange differences on translating foreign operations Net loss on cash flow hedges Net gain on availableforsale assets Shadow accounting adjustment Income tax relating to components of other comprehensive income Other comprehensive income for the year, net of tax Total comprehensive income for the year, net of tax Total comprehensive income attributable to: Equity holders of the parent Noncontrolling interests
IAS 1.81(b), 88
10,172 10,172
145
Before tax amount 000 Exchange differences on translating foreign operations Net movement on cash flow hedges Availableforsale financial assets Shadow accounting adjustment Total
20 11 (1,855) 7 (1,817)
7 (989) 5 (977)
2010 000 Exchange differences on translating foreign operations Cash flow hedges: Losses arising during the year Availableforsale financial assets: Gains arising during the year Less: Reclassification adjustments for gains included in the income statement Shadow accounting adjustment Income tax relating to components of other comprehensive income Other comprehensive income for the year, net of tax (67) (36) 6,230 (46) 6,184 (25) (1,817) 4,239
IAS 1.82(g)
146
Notes
At 1 January 2010 Profit for the year Other comprehensive income Total comprehensive income Issue of share capital Transaction costs for equity issue Issue of other equity instruments Coupon interest on other equity instruments accrued during the year Sharebased payment Dividends paid during the year Noncontrolling interests arising on business combination At 31 December 2010 42 42 43
7,385
1,045
13,457 10,063
4,014
(22)
25,879 10,063
855
25,879 10,918
A2.4
4,103
(25)
(38)
4,040
199
4,239
1,253
26,672 (302)
10,063
4,103
(25)
(38)
52
IAS 1.106(a)
1,054
43 19 15
(1) 14 (3,236)
(1) 14 (3,236)
(1) 14
IFRS 2.50
8,638
27,415
20,297
8,117
(47)
(38)
64,382
52
7,314 8,368
7,314 72,802
IAS 1.106(d)
147
Notes
At 1 January 2009 Profit for the year Other comprehensive income Total comprehensive income Issue of share capital Transaction costs for equity issue Sharebased payment Dividends paid during the year At 31 December 2009 42 42 19 15
7,382
1,000
7,643 7,891
1,716
(5)
17,736 7,891
17,736 7,891
A2.4
7,891
2,298 2,298
(17) (17)
2,281 10,172
2,281 10,172
IAS 1.106(a)
3 7,385
47 (2) 1,045
10 (2,087) 13,457
4,014
(22)
Notes At 1 January 2009 Expenses deferred Amortisation Shadow accounting adjustment At 31 December 2009 Expenses deferred Amortisation Shadow accounting adjustment At 31 December 2010
Total 000 10,364 3,222 (2,109) (15) 11,462 5,368 (3,399) (25) 13,406
12 12
IFRS 4.30
12 12
IFRS 4.30
148
A3.1. Reconciliation
The table below shows the reconciliation between the IFRS and EV reported equity. Adjustments reflect the difference in the recognition and measurement bases. 31 December 2010 Life insurance 000 Total assets before acquired additional value of inforce life insurance business Acquired additional value of in force life insurance business Total assets included in the IFRS statement of financial position Liabilities Net assets included in the IFRS statement of financial position Additional value of inforce life insurance business Net assets included in the EV statement of financial position Issued share capital, revaluation reserves and other equity instruments IFRS basis retained earnings IFRS basis total equity Additional EV basis retained earnings EV basis total equity Investment Nonlife management insurance services 000 000
Unallocated 000
Total 000
5,428 29,966
5,428 78,258
149
Unallocated 000
Total 000
5,019 7,663
5,019 30,908
Change in assumption/variables
31 December 2010 Increase/(decrease) in Embedded value of life insurance 000 63 (137) (163) (265) (248) (257) (188) 94
31 December 2009 Increase/(decrease) in Embedded value of life insurance 000 52 (93) (118) (226) (208) (217) (123) 74
Interest rate Risk discount rate Lapse rates Mortality rate for life business Mortality rate for annuity business Morbidity rates Expenses Equity
150
The Group uses a number of sensitivity based risk management tools to understand volatility of earnings and manage its business more efficiently. The Groups life insurance business is accounted for using the embedded value approach which provides a comprehensive framework for the evaluation of insurance and related risks. Sensitivities of embedded value to changes in both economic and noneconomic experience are used on an ongoing basis in order to understand volatility of earnings and inform managements decision making and planning processes. A key feature of life insurance business is the importance of managing the assets, liabilities and risks in a coordinated way, as this reflects the interdependence of these three elements. The analysis provided under A3.2 shows the effect on closing embedded value of reasonably possible changes in the main economic and noneconomic variables across the Groups insurance underwriting subsidiaries covered by the embedded value methodology. The effects are illustrative only and employ simplified scenarios. In addition, the variables are nonlinear.
As far as the economic assumptions are concerned, the analysis shows the sensitivity of closing embedded value to the following:
X X
A 1% increase in the discount rate compared to that used for the calculation of EV. A 2% increase in the assumed investment return for equity investments (for the portion of policyholders funds consisting of equities) excluding consequential changes to the risk discount rate. This assumption is used in projecting future fund growth and the level of distributable cash flows arising as a result. Assumed future bond returns are unaffected by this test. A 25 basis point increase in interest rates, including all consequential changes such as assumed investment returns for applicable asset classes, the market value of fixed interest securities and risk discount rates. This assumption is used in projecting future fund growth and the level of distributable cash flows arising as a result.
In each sensitivity calculation provided for changes in key economic variables, all other assumptions remain unchanged except when they are directly affected by the revised economic conditions. For noneconomic assumptions the analysis shows the sensitivity of closing embedded value to the following:
X
A 10% increase in maintenance expenses (a 10% sensitivity on a base expense assumption of 10 per annum would represent an expense assumption of 9 per annum). It should be noted that external commissions (a significant component of maintenance expenses) are typically fixed, for example as a proportion of premiums, and are therefore not subject to changes in expenses inflation. When there is a look through into service company expenses, the fee charged by the service company in this test is unchanged while the underlying expenses increase. A 10% increase in lapse rates (a 10% sensitivity on a base assumption of 5% would represent a lapse rate of 4.5% per annum.) The lapse rate represents the percentage of inforce policies that terminate as a result of nonpayment of renewal premiums or surrenders. A 10% increase in both mortality and morbidity rates (i.e., increased longevity) compared to that used for the calculation of EV. This is disclosed separately for life assurance and morbidity business.
Changes to key noneconomic variables do not incorporate management actions that could be taken to mitigate effects nor do they take account of consequential changes in policyholder behaviour. In each sensitivity calculation all other assumptions are therefore unchanged. Some of the sensitivity scenarios shown in respect of changes to both economic and noneconomic variables may have a consequential effect on the valuation basis when a product is valued on an active basis which is updated to reflect current economic conditions. While the magnitude of these sensitivities will, to a large extent, reflect the size of closing embedded value each variable will have a different impact on different components of the embedded value. In addition, other factors such as the intrinsic cost and time value of options and guarantees, the proportion of investments between equities and bonds and the type of business written, including for example, the extent of withprofit business versus nonprofit business and extent to which the latter is invested in matching assets, will also have a significant impact on sensitivities.
151
Previous carrying value US$000 15,750 1,551 64,013 2,547 20,561 104,422 (64,535) (3,602) (1,005) (15,713) (84,855) 19,567
Previous carrying value 000 10,500 1,034 42,675 1,698 13,707 69,614 (43,023) (2,401) (670) (10,475) (56,569) 13,045
IFRS 3.B64(o)(i)
The fair value of the noncontrolling interest in Good American Life Co has been estimated by applying an income approach. Good American Life Co is an unlisted company and therefore no market information is available. The fair value estimate is based on:
X
An assumed discount rate of 5% based on AA corporate bond yield of a similar entity to Good American Life Co. Terminal value, calculated based on a longterm sustainable growth rate for the industry ranging from 2 to 5% which has been used to determine income for the future years. An assumed adjustment because of the lack of control. This would be taken into account by market participants when estimating the fair value of the noncontrolling interest.
IFRS 3.B64(f)(vi)
The total acquisitiondate fair value of the consideration was 35,576,000 and comprised of an issue of 1,250,000 equity instruments at the published price of the shares of Good Insurance (International) Limited at the acquisition date. The fair value of shares issued is 27,859,000 and cash paid was 7,917,000.
152
IFRS 3.B64(m)
Commentary
IFRS 3 provides an option on a transaction by transaction basis on the recognition of noncontrolling interest (minority interests). The entity may choose to fair value the noncontrolling interest or to recognise its respective share of the total net assets. Good Insurance does not illustrate step acquisitions, but Ernst & Young has produced a number of thought leadership publications which illustrate the impact of this amendment, to learn more, please visit our website at www.ey.com/ifrs.
153
Commentary
Good Insurance presents cash flows using the indirect method. However, the cash flow statement prepared using the direct method for operating activities is presented in this appendix for illustrative purposes.
IAS 1.111 IAS 1.51(b), (c)
Notes Operating activities Payments to policyholders Receipts from policyholders Payments to reinsurers Receipts from reinsurers Payments to suppliers and employees Receipts from agents, brokers and intermediaries Purchase of derivatives Proceeds from sale of derivatives Purchase of fair value through profit or loss financial assets Proceeds from disposals of fair value through profit or loss financial assets Withdrawals by unitholders Purchase of availableforsale financial assets Proceeds from sale of availableforsale financial assets Maturity of availableforsale financial assets Purchase of heldtomaturity financial assets Maturity of heldtomaturity financial assets Purchase of loans and receivables Maturity of loans and receivables Purchase of investment properties Rental income on investment properties Dividend income received Interest income received Finance costs paid Income tax paid Net cash flows from operating activities Investing activities Acquisition of a subsidiary, net of cash acquired Interest income received on loans to related parties Proceeds from sale of property and equipment Purchase of intangible assets Increase in loans to related parties Purchase of property and equipment Net cash flows used in investing activities Financing activities Proceeds from exercise of options Transaction costs for equity issue Issue of other equity instruments Proceeds from Group loans Repayment of Group loans Finance costs paid on Group loan and bond borrowings Dividends paid to equity holders of the parent Net cash flows used in financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at 1 January Net foreign exchange difference Cash and cash equivalents at 31 December
154
2009 000 (39,624) 73,653 (19,426) 10,558 (20,453) 1,217 (100) 1,070 (3,649) 3,000 (59) (5,000) 6,523 65 (531) 85 (2,264) 1,245 (219) 170 3,015 4,435 (312) (1,444) 11,955
(4,658) 7,000 (114) (8,000) 9,844 87 (333) 100 (2,509) 1,304 (203) 178 3,157 3,709 (422) (1,564) 9,373
24
28(a)
IAS 7.21
21 23
18 1,095 (318) (50) (1,683) (938)
IAS 7.39 IAS 7.31 IAS 7.16(b) IAS 7.16(a) IAS 7.16(c) IAS 7.16(a) IAS 7.10
IAS 7.21
42 43
50 (2)
IAS 7.17(a)
5,500 (450) (2,087) 3,011 14,028 6,848
IAS 7.17(a) IAS 7.17(c) IAS 7.17(d) IAS 7.31 IAS 7.31 IAS 7.10
15
20,876
32
Good Insurance (International) Limited
Deferred expenses deferred acquisition costs Those direct and indirect costs incurred during the financial period arising (DAC) from the writing or renewing of insurance contracts and/or investment contracts with DPF, which are deferred and brought to account as expenses of future reporting periods. Deferred expenses investment management services Those incremental costs incurred during the financial period directly attributable to securing investment contracts without DPF, under which investment management services are rendered, which are deferred to the extent that these costs can be identified separately, measured reliably and it is probable that these costs will be recoverable out of future revenue margins. Initial and other frontend fees received for rendering future investment management services relating to investment contracts without DPF, which are deferred and recognised as revenue when the related services are rendered. A contractual right given to a policyholder to receive, as a supplement to guaranteed benefits, additional benefits:
X X X
Deferred revenue
that are likely to be a significant portion of the total contractual benefits whose amount or timing is contractually at the discretion of the issuer that are contractually based on:
X
the performance of a specified pool of contracts or a specified type of contract the realised and or unrealised investment returns on a specified pool of assets held by the issuer the profit or loss of the company, fund or other entity that issues the contract
General insurance
An insurance contract which provides coverage other than life insurance to the policyholder. Examples include motor, household, liability, marine and business interruption. Short-tem life and health insurance is also frequently classified as general insurance. This is an estimate of the adjusted net worth of a life insurance business plus the value of inforce business. The measurement principles differ from the measurement principles under IFRS. The previous national accounting basis that will be used as the grandfathered accounting basis for the recognition and measurement of insurance contracts, as allowed under IFRS 4, until Phase II of IFRS 4 is completed, which will then regulate the recognition and measurement of insurance contracts. The risk of a possible future change in one or more of a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index or other variable, provided in the case of a nonfinancial variable that the variable is not specific to a party to the contract. An insurance contract which provides medical coverage to a policyholder. Claims to be made by a policyholder, but not yet reported to the insurance company.
Euroland GAAP
Financial risk*
155
Insurance contract*
Premiums written
Reinsurance
Shadow accounting
Unitholder/unitlinked
* Definition sourced from IFRS 4 Appendix A
156
Index
IAS 1 Presentation of financial statements IAS 1.10 16, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45 13 17 17, 18, 147, 148 17, 18, 147, 148 17, 18, 147, 148 17, 18, 147, 148 17, 18, 147, 148 17, 18, 63, 147, 148 19, 154 21 20 20, 21, 22, 25, 26, 27, 29 25, 26, 27, 29 25, 26, 27, 29 48 48, 49, 50, 94 48, 49, 50 98 98 99 99 98, 99 99 99 63 20 20 33 13, 15, 16, 17, 18, 19, 20, 38, 145, 147, 148, 154 15, 17, 18, 145, 147, 148 13, 15, 17, 18, 19, 145, 147, 148, 154 13, 15, 17, 18, 19, 145, 147, 148, 154 13, 15, 16, 17, 18, 19, 20, 38, 145, 147, 148, 154 13, 15, 16, 17, 18, 19, 20, 145, 147, 148 16 16 16 16 16 16 IAS 1.54(i) IAS 1.54(k) IAS 1.54(m) IAS 1.54(n) IAS 1.54(o) IAS 1.54(q) IAS 1.54(r) IAS 1.55 IAS 1.60 IAS 1.61 16 16 16 16 16 16 16 16 16, 20, 34 20, 69, 95, 96, 122, 125, 126, 127 86 16 69 16 97 97 97 97 97 15, 145 15, 145 13 13 13 13 13 15, 64, 145, 146 15, 145 15, 145 13, 15, 145 13 15, 145 15, 145 13, 61 15, 61, 145 15, 64, 65, 145, 146 15, 145 15 13, 14 21, 145 IAS 7.40(b) IAS 7.40(c) IAS 7.40(d) IAS 7.45 IAS 7.6 IAS 7.8 53 53 52, 152 19, 154 19, 36 19, 36, 86
IAS 8 Accounting policies, changes in accounting estimates and errors IAS 8.14 IAS 8.15 IAS 8.28 IAS 8.30 IAS 8.30(d) 46 46 46 51 51
IAS 1.10(b) IAS 1.10(c) IAS 1.106(a) IAS 1.106(c) IAS 1.106(d) IAS 1.106(d)(i) IAS 1.106(d)(ii) IAS 1.107 IAS 1.111 IAS 1.112 IAS 1.112(a) IAS 1.117 IAS 1.117(a) IAS 1.117(b) IAS 1.122 IAS 1.125 IAS 1.125(b) IAS 1.135(a) IAS 1.135(a)(iii) IAS 1.135(b) IAS 1.135(c) IAS 1.135(d) IAS 1.135(e) IAS 1.136 IAS 1.137(a) IAS 1.138 IAS 1.16 IAS 1.32 IAS 1.51
IAS 1.66 IAS 1.77 IAS 1.78(a) IAS 1.78(d) IAS 1.78(e) IAS 1.79(a)(i) IAS 1.79(a)(ii) IAS 1.79(a)(iii) IAS 1.79(a)(iv) IAS 1.81 IAS 1.81(b) IAS 1.82(a) IAS 1.82(b) IAS 1.82(c) IAS 1.82(d) IAS 1.82(f) IAS 1.82(g) IAS 1.82(h) IAS 1.82(i) IAS 1.83 IAS 1.83(a) IAS 1.83(b)(i) IAS 1.83(b)(ii) IAS 1.85 IAS 1.88 IAS 1.90 IAS 1.91 IAS 1.96 IAS 1.99 IAS 27.33
IAS 10 Events after the reporting period IAS 10.12 IAS 10.13 IAS 10.17 IAS 10.21 IAS 12 Income taxes IAS 12.117 IAS 12.120A(a) IAS 12.22(c) IAS 12.24 IAS 12.34 IAS 12.37 IAS 12.39 IAS 12.44 IAS 12.46 IAS 12.47 IAS 12.56 IAS 12.61 IAS 12.61A IAS 12.71 IAS 12.77 IAS 12.79 IAS 12.80(a) IAS 12.80(b) IAS 12.80(d) IAS 12.80(g) IAS 12.80I IAS 12.81(a) IAS 12.81(b) IAS 12.81(c)(i) IAS 12.81(e) IAS 12.81(f) IAS 12.81(g)(i) IAS 12.81(g)(ii) IAS 12.88 IAS 16 Property, plant and equipment IAS 16.1 IAS 16.12 IAS 16.14 IAS 16.30 IAS 16.51 IAS 16.67 IAS 16.68 IAS 16.71 IAS 16.73(a) 27 27 27 27 27 27 27 27 27 36 42 37 37 37 37 37 37 36 37 37 36, 37 37 37 13 62 62 62 62 62 62 62, 85 62 62 85 85 85 85 50 44, 137 44 20 137
IAS 7 Cash flow statements IAS 7.10 IAS 7.14 IAS 7.16(a) IAS 7.16(b) IAS 7.16(c) IAS 7.17(a) IAS 7.17(c) IAS 7.17(d) IAS 7.18 IAS 7.18(a) IAS 7.18(b) IAS 7.20(a) IAS 7.20(b) IAS 7.20(c) IAS 7.21 IAS 7.28 IAS 7.31 IAS 7.35 IAS 7.39 IAS 7.40(a) 19, 154 19 19, 154 19, 154 19, 154 19, 154 19, 154 19, 154 19, 154 154 19 134 134 134 19, 154 19, 154 19, 154 19, 154 19, 154 53
IAS 1.51(c)
IAS 1.51(d)
IAS 1.51(e)
IAS 1.54 IAS 1.54(a) IAS 1.54(b) IAS 1.54(c) IAS 1.54(d) IAS 1.54(e)
157
Index
IAS 16.73(b) IAS 16.73(c) IAS 16.73(d) IAS 16.73(e)(i) IAS 16.73(e)(iii) IAS 16.73(e)(ix) IAS 16.73(e)(vii) IAS 16.74(a) IAS 17 Leases IAS 17.20, IAS 17.25, IAS 17.27, IAS 17.33, IAS 17.35(d), IAS 17.52, IAS 17.56(a), IAS 17.56(c), IAS 17.8, IAS 18 Revenue IAS 18 Appendix 14(b)(ii) IAS 18 Appendix 14(b)(iii) IAS 18.30(a) IAS 18.30(c) IAS 18.8 45 24, 26, 42,59,86,96 45 45 37 38 38 38 38 135 38 135 38, 135 38 27 27 69 69 69 69 69 69 IAS 23 Borrowing costs IAS 23.26 IAS 23.27 IAS 23.8 69 28 28 IAS 33 Earnings per share IAS 33.45, IAS 33.66, IAS 33.70(b) IAS 33.70(c) IAS 33.70(d) 44 13, 63 63 63 63
IAS 24 Related party disclosures IAS 24.12 IAS 24.16 IAS 24.16(a) IAS 24.16(b) IAS 24.16(e) IAS 24.17 IAS 24.17(a) IAS 24.17(b) IAS 24.17(c) IAS 24.20(h) IAS 24.21 136 137 137 137 137 136, 137 136 136 136 137 136
IAS 36 Impairment of assets IAS 36.10(a) IAS 36.10(b) IAS 36.110 IAS 36.114 IAS 36.117 IAS 36.119 IAS 36.124 IAS 36.129(a) IAS 36.134 IAS 36.134(a) IAS 36.134(c) IAS 36.134(d) IAS 36.134(d)(i) IAS 36.134(d)(ii) IAS 36.134(d)(iii) IAS 36.134(d)(iv) IAS 36.134(d)(v) IAS 36.134(f) IAS 36.25 IAS 36.30 IAS 36.55 IAS 36.59 IAS 36.6 IAS 36.60 IAS 36.66 IAS 36.80 IAS 36.86 IAS 36.9 IAS 36.90 IAS 36.96 26 25 25 25 25 25 25 55, 56 66, 67 66 66 66, 67 67 67 66, 67 67 67 67 25 25 25 25 25 25 25 22, 23 23, 25 25, 26 25 26
IAS 27 Consolidated and separate financial statements IAS 27.12 IAS 27.20 IAS 27.21 IAS 27.22 IAS 27.23 IAS 27.24 IAS 27.26 IAS 27.28 IAS 27.30 IAS 27.33 IAS 27.34 20 20 20 20 20 20 20 21 21 15, 145 21
IAS 19 Employee benefits IAS 19.120A(b) IAS 19.120A(c) IAS 19.120A(e) IAS 19.120A(f) IAS 19.120A(g) IAS 19.120A(j) IAS 19.120A(k) IAS 19.120A(l) IAS 19.120A(m) IAS 19.120A(n) IAS 19.120A(p) IAS 19.120A(q) IAS 19.46 IAS 19.54 IAS 19.58 IAS 19.58A IAS 19.64 IAS 19.7 IAS 19.92 IAS 19.93 IAS 19.93A IAS 19.96 42, 92 92 93 92 92 93 93 93 92 93 94 93 61 42 42 42 42 42 42 42 15, 42 42
IAS 28 Investments in associates IAS 28.11 IAS 28.13 IAS 28.18 IAS 28.22 IAS 28.23(a) IAS 28.26 IAS 28.31 IAS 28.33 IAS 28.37(a) IAS 28.37(b) IAS 28.37(e) IAS 28.38 IAS 28.39 IAS 28.6 28 28 28 28 28 28, 68 28 28 68 69 28 13, 16 28 28
IAS 37 Provisions, contingent liabilities and contingent assets IAS 37.14, IAS 37.45, IAS 37.47, IAS 37.53, IAS 37.54, IAS 37.60, IAS 37.68, IAS 37.86, IAS 38 Intangible assets IAS 38.104 IAS 38.107 IAS 38.109 IAS 38.118 IAS 38.118(c) IAS 38.118(d) IAS 38.118(e) IAS 38.118(e)(iv) IAS 38.118(e)(vi) IAS 38.12 IAS 38.22 IAS 38.24 IAS 38.33 IAS 38.34 23 23 23 23, 68 68 23 68 68 68 53, 153 53, 153 23 53, 153 53, 153 43 43 43 43 43 43 43 135
IAS 32 Financial instruments presentation IAS 32.16 IAS 32.33 IAS 32.35 IAS 32.42 97 44 44, 97 33
IAS 21 The effects of changes in foreign exchange rates IAS 21.21 IAS 21.23(a) IAS 21.23(b) IAS 21.23(c) IAS 21.28 IAS 21.32 IAS 21.39(a) IAS 21.39(b) IAS 21.39(c) IAS 21.47 IAS 21.48 IAS 21.9
158
38 38 38 38 75, 38 38 38 38 38 38 38 38
IAS 32 Financial instruments presentation IAS 32.16 IAS 32.33 IAS 32.35 IAS 32.39 97 44 97 17, 18, 147, 148
Index
IAS 38.57 IAS 38.74 IAS 38.88 IAS 38.97 IAS 39 Financial instruments Recognition and Measurement IAS 39.100 IAS 39.101 IAS 39.14 IAS 39.17 IAS 39.18, IAS 39.18(b) IAS 39.20(a) IAS 39.20(c) IAS 39.30(a) IAS 39.38 IAS 39.39 IAS 39.40 IAS 39.41 IAS 39.43 IAS 39.46 IAS 39.46(a) IAS 39.46(c) IAS 39.47 IAS 39.47(c) IAS 39.49 IAS 39.50E IAS 39.55(a) IAS 39.55(b) IAS 39.56 IAS 39.58 IAS 39.59 IAS 39.63 IAS 39.64 IAS 39.65 IAS 39.67 IAS 39.68 IAS 39.69 IAS 39.70 IAS 39.86 IAS 39.88 IAS 39.89 IAS 39.9 IAS 39.9(a) IAS 39.91 IAS 39.92 IAS 39.93 IAS 39.95 IAS 39.95(b) IAS 39.97 IAS 39.98 IAS 39.99 IAS 39.AG14 IAS 39.AG84 IAS 39.AG87 IAS 39.AG89 IAS 39.AG93 34 34 42 31 31 31 31 31 31 29 41 41 41 29, 30, 33, 40, 41 29, 30 30 35 41, 42, 45 42 40 30 29, 33 30 30, 41, 45 31 31 31 31 31, 32 30, 32 32 32 32 33 33 34 29, 30, 34, 42, 45 29 34 34 34 34, 45 45 34 34 34 29 31 32 32 31, 32 23 23 23 23 IAS 40 Investment property IAS 40.18 IAS 40.19 IAS 40.20 IAS 40.38 IAS 40.57 IAS 40.60 IAS 40.61 IAS 40.65 IAS 40.66 IAS 40.69 IAS 40.75(a) IAS 40.75(d) IAS 40.75(e) IAS 40.75(f) IAS 40.75(f)(i) IAS 40.76 IAS 40.76(a) IAS 40.76(d) IFRIC 8 Scope of IFRS 2 IFRIC 8.11 IFRIC Interpretation 4 Determining whether an Arrangement contains a Lease IFRIC 4.17 IFRIC 4.6, 1 38 38 43 27 27 27 27 27 27 27 27 27 27, 45 27 70 27, 70 59, 70 59 60, 70 70 60, 70 IFRS 2.30 IFRS 2.32 IFRS 2.33 IFRS 2.44 IFRS 2.45 IFRS 2.45(a) IFRS 2.45(a)(iii) IFRS 2.45(b) IFRS 2.45(c) IFRS 2.45(d) IFRS 2.46 IFRS 2.47(a) IFRS 2.47(a)(i) IFRS 2.47(a)(ii) IFRS 2.50 IFRS 2.51(a) IFRS 2.51(b) IFRS 2.53 IFRS 2.56 IFRS 2.7 IFRS 2.B42 44 44 44 43 43, 64, 65 64, 65 65 65 65 65 64, 65 65, 66 66 66 17, 18, 147 61, 64 65 43, 44 65 17, 44 43
IFRS 3 Business combinations IFRS 3.10 IFRS 3.19 IFRS 3.23 IFRS 3.32 IFRS 3.37 IFRS 3.5 IFRS 3.54 IFRS 3.B63(a) IFRS 3.B64(a) IFRS 3.B64(b) IFRS 3.B64(c) IFRS 3.B64(d) IFRS 3.B64(e) IFRS 3.B64(f)(iii) IFRS 3.B64(h) IFRS 3.B64(i) IFRS 3.B64(k) IFRS 3.B64(m) IFRS 3.B64(o)(i) IFRS 3.B64(o)(ii) IFRS 3.B64(q)(i) IFRS 3.B64(q)(ii) IFRS 3.B67 22 22 54 22 22 22 22 22 52, 152 52, 152 52, 152 52, 152 53, 153 53, 152 53, 153 52, 152 53, 153 53, 153 52, 152 152 53, 153 53, 153 54
IFRS 1 First-time adoption of International Financial Reporting Standards IFRS 1 3, 7, 8, 46, 138, 139, 140, 141, 142 138 138 138 138 138 139, 140, 141 139, 140 141 142 141 138 138 138 138 138 138
IFRS 1 Appendix C IFRS 1 Appendix D IFRS 1.21 IFRS 1.22 IFRS 1.23 IFRS 1.24 IFRS 1.24(a) IFRS 1.24(b) IFRS 1.25 IFRS 1.40 IFRS 1.7 IFRS 1.B2 IFRS 1.B4 IFRS 1.D10 IFRS 1.D19 IFRS 1.D4
IFRS 4 Insurance contracts IFRS 4 Appendix A IFRS 4.13 IFRS 4.14(c) IFRS 4.15 IFRS 4.16 IFRS 4.17 IFRS 4.18 IFRS 4.19 IFRS 4.20 IFRS 4.30 IFRS 4.31 21, 22, 156 20 36 39, 40 39, 40 39, 40 39, 40 39, 40 35 145, 148 24, 53, 54, 153
IFRS 2 Share-based payment IFRS 2.10 IFRS 2.27 IFRS 2.27A IFRS 2.28 43 43 43 43, 44
159
Index
IFRS 4.31(b) IFRS 4.34 IFRS 4.35 IFRS 4.37(a) 24, 53, 153 22 22 21, 22, 23, 24, 25, 26, 27, 35, 36, 39, 40, 41, 42, 44, 45, 60 16, 35, 58, 59, 84, 85, 86, 87, 96 35, 84 104, 106, 109 88, 89, 91 26, 27, 41, 42, 44, 45, 68, 86, 87, 88, 89, 90, 91 100, 101, 102, 103, 104, 108 100, 101, 102, 108 106, 109 101, 102, 103, 104, 108, 109 110, 111, 112 122, 123, 124, 125 107, 130, 131, 132, 150, 151 106, 107, 109, 130, 131, 132, 150, 151 1, 110 22 22 22 21 21 53, 153 13 IFRS 7.20(a) IFRS 7.20(a)(i) IFRS 7.20(a)(ii) IFRS 7.20(b) IFRS 7.20(c) IFRS 7.20(c)(i) IFRS 7.20(e) IFRS 7.21 IFRS 7.22(a) IFRS 7.22(b) IFRS 7.22(c) IFRS 7.23(a) IFRS 7.23(d) IFRS 7.24(a)(i) IFRS 7.24(a)(ii) IFRS 7.24(b) IFRS 7.25 59, 60, 75 59, 60 59 61, 75 13 13 61 29, 30, 31, 32, 33, 41 34, 72 33, 71, 72 72 73 73 60, 72 72 73 70, 71, 74, 75, 76, 77, 84, 86, 91, 92, 95, 96 35 1, 76, 77, 79 77, 80, 81, 82, 83 79 74, 76, 91, 92, 95, 96 74, 76, 95 91 91 71, 97, 98, 99, 100, 113, 122, 127, 128, 130, 132 99, 100, 113, 122, 127, 128, 130, 132 97, 98, 99, 100, 113, 128, 130, 132 114, 115, 117, 118, 119, 120, 128, 129 120, 129, 130, 132 115 114, 117, 119, 120 122 IFRS 7.36(c) IFRS 7.36(d) IFRS 7.37(a) IFRS 7.37(b) IFRS 7.37(c) IFRS 7.39(a) IFRS 7.40(a) IFRS 7.40(b) IFRS 7.41 IFRS 7.6 IFRS 7.8 IFRS 7.8(a) IFRS 7.8(b) IFRS 7.8(c) IFRS 7.8(d) IFRS 7.8(f) IFRS 7.B10(b) IFRS 7.B11C IFRS 7.B11E IFRS 7.B11E(a) IFRS 7.B11E(c) IFRS 7.B11F(g) IFRS 7.B19 IFRS 7.B5(d)(i) IFRS 7.B5(d)(ii) IFRS 7.B5(f) IFRS 7.B6, IFRS 7.BC54 IFRS 7.IG13B IFRS 7.IG24 117, 118, 119, 120, 121 117, 118 118, 121 121 121 122, 123, 124, 125 129, 132, 133 132, 133 150, 151 74, 75 16, 73, 75, 94 73, 75 73 73 73 94 71 123, 124 122, 125 122 122 71 130, 131, 132 31 31 31 100 118 82 120
IFRS 4.37(b)
IFRS 4.38 IFRS 4.39(a) IFRS 4.39(c)(i) IFRS 4.39(c)(ii) IFRS 4.39(c)(iii) IFRS 4.39(d)(i) IFRS 4.39(d)(ii) IFRS 4.39A(a)
IFRS 7.27 IFRS 7.27A IFRS 7.27B, IFRS 7.28 IFRS 7.29 IFRS 7.29(a) IFRS 7.29(c) IFRS 7.30 IFRS 7.33
IFRS 4.44 IFRS 4.7 IFRS 4.8 IFRS 4.9 IFRS 4.B29 IFRS 4.B30 IFRS 4.BC150 IFRS 4.IG24
IFRS 8 Operating segments IFRS 8.22(a) IFRS 8.22(b) IFRS 8.23 IFRS 8.23(a) IFRS 8.23(c) IFRS 8.23(d) IFRS 8.23(e) IFRS 8.23(f) IFRS 8.23(g) IFRS 8.24(a) IFRS 8.25 IFRS 8.27(a) IFRS 8.33(a) IFRS 8.33(b) IFRS 8.34 54 54 55, 56, 57 55, 56 55, 56 55, 56 55, 56 55, 56 55, 56 57 54 54 58 58 58
IFRS 7.33(a)
IFRS 7.33(b)
IFRS 7 Financial instruments disclosures IFRS 7. 27B (a) IFRS 7. 27B (b) IFRS 7.14(a) IFRS 7.16 IFRS 7.20 77 80, 81, 82 69 31, 32, 121 13, 59, 60, 61, 75
IFRS 7.34(a)
160
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